Canaries Inheritance Tax – Tenerife Tax

Do you own property in the Canary Islands? 

Then you need to know more about Spanish Inheritance Tax.  The knowledge could save you and your family thousands of Euros that would otherwise be payable to the Spanish Tax Authorities.

The facts about Spanish Inheritance Tax

• In Spain it is the beneficiaries of a will who are taxed, not the estate of the deceased.
• There is no dual taxation treaty on inheritance tax between Spain and the UK.  This means that if you are UK domiciled and your worldwide estate is worth more than £325,000 for an individual or £650,000 for a couple, tax will be paid on the same Spanish property in both countries.
• If you and your beneficiaries are not residents of the Canary Islands (and this doesn’t just mean having your ‘Residencia’ or ‘Certificado de Registro’) then they will not be entitled to any exemption from Spanish Inheritance Tax.  This includes your spouse.  Thus if the property you own is in joint names and one of you dies, considerable monies may have to be found in order for the surviving spouse to remain living there – as much as 40% of the value inherited in tax alone.
• The assets bequeathed and any bank accounts held in the deceased’s name (including joint accounts) will be frozen until all the beneficiaries have separately probated the estate and all taxes have been paid.  This means that the property cannot be sold or the bank accounts used by the beneficiaries in order to meet the tax bill.
• Probate costs in Spain are around £5,000 per beneficiary.
• Any tax due must be paid within 6 months of the death or 15 days after probate is granted in order to avoid fines.

Does this make comfortable reading?

Do you have property in the Canary Islands that you let?

If you are letting a property in your own name (as opposed to that of a registered Spanish business) then you should be paying Spanish income tax on the rentals you receive less a proportion of your mortgage interest (where applicable).  There has been a lot of publicity recently regarding a crackdown by the Spanish Tax Authorities on rental property owners who are not paying tax in Spain.  If you are one of these owners then you should be aware of this.

 Instead you could be paying a lower UK tax percentage on the income less all the allowable expenses relating to it – mortgage interest, rates, bills, repairs, insurance etc, and even flights to the Canaries for property owners.  The tax saving could be significant.

Is this really completely legal and straightforward?

YES!

• Because your company is set up within the European Union, EU Directive means that it can be taxed in the UK rather than in Spain if it is a UK resident company.
• The company is set up for you.  All the complex legal work, translations, notarisations and paperwork are taken care of.  An identification number for the company will be obtained from the Spanish Tax Office, a Spanish bank account is set up and all of your existing direct debits relating to the property are transferred to it.  All the legal documents are kept on our private, secure case management site and you can view them or download them at any time.
• All YOU have to do is make one visit to a Notary, either in the UK or in Spain whichever is more convenient. 

How does this help you?

• As the legal owner and director of the company you retain full control of the property at all times.
• You can rent out your property, sell it or raise funds on it just as you can with personal ownership.
• The company can claim tax relief on all ownership expenses including electricity, rates, insurance, repairs, Community Fees, mortgage interest and even some directors’ travel expenses.
• Any rental income will be taxed at the UK Corporation Tax rate – 3% less than the Income Tax rate in Spain – plus you can claim for ownership expenses as mentioned above.  Compared to what you should pay in Spain, this tax saving can be significant.
• You can divide the property easily between beneficiaries.
• You can change ownership percentages with no additional Spanish transfer costs.
• If the property is your only Spanish asset then there is no longer a need for a Will in Spain.  Neither is there any requirement for Spanish probate or legal fees.  Everything is dealt with in the UK, thus saving your beneficiaries a nightmare of Spanish officialdom.
• When one of the owners of the company dies the company is simply reorganised in line with your wishes for the shares and assets of that company.  This falls outside the scope of Spanish Inheritance Tax because the company has not died.
• There will be no forced sale of the property because no tax bill will need to be met.