Inheritance tax planning for non-resident owners   
of Spanish property

Warning: The information set out below is a general guideline provided by DOMENECH ABOGADOS. Specific advice should be sought before any action in reliance on it is taken, as explained more fully in this website's legal notice.

It is well known that Spanish inheritance tax can be a heavy burden for those who don’t live in Spain but who inherit property here. This is particularly so where the deceased was another non-resident and, therefore, beneficiaries can’t benefit from tax reductions applicable to the transfer of habitual residences (which is possibly the most significant tax relief non-resident beneficiaries can hope for).   Not only will such non-resident beneficiaries not benefit from tax breaks linked to the transfer of habitual residences, but nor will they be entitled to certain regional tax reliefs often available for resident beneficiaries.

For those intending to buy in Spain, financing the purchase by means of a mortgage with a Spanish bank will decrease the inheritance tax bill for their heirs, since the principal amount outstanding at death will serve to decrease the value of the property for inheritance tax purposes. This is simple and effective tax planning that every purchaser of Spanish property should consider.

That said, a word of caution in respect of complicated schemes involving one or more companies which are often sold as easy solutions to potential inheritance tax liabilities.  These may make sense in certain cases – particularly if you’re habitually listed by Forbes Magazine as one of the world’s richest or you’re a celebrity craving privacy - but may prove a complex and expensive waste of time for more modest investors.  Always remember, all that glisters is not gold and using expensive company vehicles to purchase a Spanish property may work in relatively few cases, while it’ll simply be ineffective and costly in most of the others.

Reality is sometimes stranger than fiction, but we still wonder why anybody in their right mind would be induced to enter into schemes under which - and this is an example we see being marketed as “attractive” - they become a shareholder in a company which is subsequently left to the control of another shareholder (who is also appointed as sole director and, as such, becomes free to sell the property), with the first shareholder giving a personal guarantee of the loan obtained by the company to buy the property!  Yet schemes like that are regularly being sold to the unwary and often we at DOMENECH ABOGADOS are asked to try to sort out the inevitable resulting mess.  Let’s not forget that there’s a beauty in simplicity!

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