Friday, 5th June 2020

This Month's Magazine
Equity release in Spain

Equity release in Spain

This month Graydon & Associates look again at the problem of Inheritance Tax

Owning a property in Spain has many benefits which property developers and estate agents will be very happy to tell you about. However, they very rarely inform you of the increased tax burden ownership that the property will bring.

Annual taxes such as I.B.I and wealth tax become payable immediately and capital gains tax becomes payable should the property be sold at a profit.

Most people accept these taxes as being justifiable, however it is the future inheritance tax that will eventually have to be paid either by you, your spouse or your heirs that can cause the greatest concern and possible hardship.

Ownership of property cannot change hands until the appropriate amount of Spanish Inheritance Tax has been paid. There are no exemptions on transfers between spouses (except in certain circumstances which generally do not apply to expatriates). Therefore, if your property is owned in joint names, on the death of one party the surviving spouse will have to pay inheritance tax on the 50% inherited from the deceased.

The tax free allowance is a pittance and amounts to €15,957. The tax burden is a lot worse if the beneficiaries are not direct relatives. This includes step children and “common-law” spouses who could find that the inheritance tax payable is doubled. The tax has to be paid within six months of death and the property cannot be sold to pay the taxes.


Increasing Wealth – Increasing Problem
Property values have increased substantially over the last few years and a property worth €250,000 ten
years ago could now be worth €1,000,000. A very substantial increase in wealth but in a form that is not readily accessible.

This increased wealth cannot be used to improve your lifestyle but it has increased the inheritance tax liability.

The Solution – Doubled
A number of equity release arrangements are now available in Spain and by using your property as security for a loan, you reduce the assessable value for inheritance tax purposes by the amount of the loan. A loan of 80% would reduce the amount of inheritance tax payable by more than 90% while a loan of 100% would totally remove any liability.

Some of the capital released may be taken as cash and used for any purpose, the balance is invested by the lending bank to create a portfolio designed to meet the client’s  requirements.

The interest on the bank's loan is paid from the returns generated by the portfolio and any surplus is retained by the client. This surplus could be taken as income if required

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