Mitzyboy

I thought it might be a good idea to start an all encompassing thread on this rather morbid subject. I have to admit not knowing exactly the mechanics of an Usufruct or whether it applies to me.

Luckily, living in Valencia IHT between my wife and I isn't too much of an issue (at the moment!). However once the surviving partner goes, then it becomes a serious problem for my daughter, a resident in the UK.

I've heard of starting a limited company to take ownership of the property in Spain, so that when the surviving partner dies there is not an IHT issue. However I've never heard from anyone who has done it, and I've heard it can cost thousands to set the system up.

When I came here I created mirror image wills in Spain and the UK, and that I believe is the correct way to have them.

It's an important issue for many people living here, so can we compile a factual thread with examples from people who have actual experience of the different systems, or those that have minutely researched them.

please, do not take the thread off track or fill it with extraneous chat as it may well become an important reference point for people in the future, who knows I may even make it a sticky if it warrants it. So if you do go off topic dont be suprised if the posts are removed without reference to you.

Thanks

fionamw

Good idea; just for reference at the start of the thread do you want it to be just what it says on the tin or anything to do with property & wills? May sound a daft question but just to be clear.........

Mitzyboy

Anything that has useful factual information on the subject of what happens to our estates when we peg it, and how to limit our liability to taxes.

chulo

It costs around £5,000.00 and is a con.

You can set up a limited company for £50 in 25hrs the form is easy, if unsure copy a registration since October 09 which you can get online for £1.00.

One word of warning though, the govt has or is about to change some rules regarding private individuals setting up IHT to avoid paying tax.

Under the anti avoidance rules being a retired Expat registering to avoid IHT does break a few of the rules.

It hasn't been tested in court yet, but as soon as an Expat with an agreement dies I'm sure something will be challenged and the law made clear.

There are a lot of people giving advice to do this, be careful there generally the ones selling the services, it can be attractive as they deal with the translation and tax.

There small print also protects them if there is a change in the law, so you could be liable if there is an issue.

They also sell there services to anybody who wants to franchise the business, you don't need any qualifications, just pay them a lot of cash and they furnish you with all you need to sell IHT protection.

I'd advise taking independent legal advice.

jackytoo

I agree with Chulo. Not wanting to sound unhelpful but every scheme we have looked at was either a con or not worth the high start-up cost (unless you are worth millions).

Thread is a good idea though. I would hate to think of my family stuck with sorting everything out in Spain, especially if property was still not selling!

EsuriJohn

I have had a keen interest in this since we bought our plot in 2005. At that time the talk was of setting up a SPANISH limited company to own the house and the disadvantage was that any use of it by a non-resident owner would attract benefit in kind tax back in UK.

We did not go down that path others did at about €3000 a go. Then both governments changed their tax law in opposite directions UK removed the benefit in kind tax and Spain introduced it so it is now said to work with a UK registered company (it costs another €3000 to unravel the Spanish company and about £3000 through an agent to set up the UK company). There are also ongoing annual costs for the UK company.

What we did was to buy the plot and house in joint names (all five of us) with Kath and I to become resident in time in Andalucia the children to remain non resident this gave the best in terms of allowances.

Then we have mirror image wills in UK and Spain leaving our assets to the 3 children in equal ammounts. Finally both Kath and I have usufructs in our Spanish wills to reduce any tax payable on a sliding scale based on age.

The usufruct gives the surviving partner a veto on what the children might choose to do with the house after the first death since the survivor has the right to live there until death or the decision to leave.

Thats where we stand today and I have looked at the UK company ownership but two things deter me a present. Firstly the cost and secondly as shown before governments can and do change tax law to suit themselves at the drop of a hat so what works this year may not next. Having said that the reason the UK company now works is thanks to EU law so that may restrain the ability to change in the future.

Mitzyboy

So, please explain simply what an usfruct does to help you with tax

Dxf

Hi

I took proffessional advice before purchasing in Spain. I am a single man.

Basically I do not own or have any financial interest in the house. My two children own the house, based on I expect to die before my children. So that they can not "throw me out of the house" I have an usufruct which gives me the right to live in the house until I die.

When I do "pop my clogs" there is no inheritance tax as I do not own or have an interest in the house (Also I intend to die a pauper).

If you currently own your house, then you need to "sell" it to your children and in this "crisis" the price is lower, therefore less tax to pay - but more for the kids to pay when they eventually sell it.

I know the Spanish add babies onto the escitura - are there tax implications at the time of adding them "into the pot"?

Davexf

SueG

OK then in simple terms if you give a usofruct (known as life interest in England) then no tax is payable by the inheritor on the house because they will not own it only have a life interest the tax will kick in then on second death so in your case your children.

As we live in the Valencia region the tax breaks are as you say very good so it does depend on circumstances.

Please also be aware that any inheritors MUST HAVE NIE NUMBERS so it is worth getting the family numbers when they come over to visit.

Anyone near to our office gets the first interview free and then your particular circumstances can be discussed.

Please also bear in mind that your English Will should state that it covers every where except Spain but should also mention that it the assets can be used to pay Spanish Inheritance tax. As you are probably aware in England an asset can be sold to pay inheritance tax but that is not the case in Spain.

Finally ONE VERY IMPORTANT NOTE it is presumed that if you die in Spain without a Will but have a English Will you can use that. This is is true but if will be a very costly exercise. Probate has to be obtained in England, then apostilled and translated into Spanish and then you start on the Spanish side - by this time I can virtually guarantee that six months will have elapsed and then you are into paying interest on the Spanish side. IT IS ALSO IMPORTANT TO NOTE THAT IT IS NO GOOD HAVING AN ENGLISH WILL WITH NO ENGLISH ASSETS - you cannot obtain a Grant from England with no assets. I can promise I have tried on behalf of clients - the English Probate office require at least GBP5000 somewhere - jewellery, English car etc will not do!!!!

Another thought to bear in mind - just had a case where the client had died no Spanish Will and the English Will states that it covers everywhere except Spain - have spoken to the English Solicitor who confirms his diary note telling the client to make a Will in Spain and the client just never got around to it. The family are well and truly in the @@@@

jackytoo

Some good points there.

If ownwership of the property is transfered to the children would it not count as a sale and costly taxes be due?

Fred James

Worse than that - it could be considered as a gift and the gift tax is the same as IHT and payable at the time of making the gift.

The rules again differ from region to region.

Mitzyboy

Are you not allowed to make a gift within a certain time limit though, or is that something thats just been made up?

chulo

Gives I believe have to be no more than £3,000.00 a year.

The change of ownership has a 7 yr rule, you have to survive the 7 yrs, after that there is no liability.

My parents did it, so that the property cannot be used to fund any need for Nursing care and I will inherit the property complete.

In 2005 the Chancellor changed the rules for UK resident who own property abroad.

Fred James

No, unlike the UK there is no time limit on gifts - they are taxed immediately.

In the UK if you survive 7 years from the date of the gift there is no tax.

As I said earlier, there are huge regional differences.

Fred James

You are talking about UK tax here - it is very different in Spain.