For many years now Graydon & Associates have been giving advice to expatriates on all matters appertaining to taxation in Spain. Over the last four years they have specialized in inheritance tax planning and have worked in conjunction with many of the Coasts leading lawyers, accountants and tax advisors in assisting their clients in reducing their exposure to this tax. In many cases we have been able to totally remove any liability to Spanish inheritance tax. It is an extensive and complicated subject and advice should only be taken from professionals qualified to do so.
We now see many firms advertising Spanish Inheritance Tax avoidance schemes, and would therefore advise any person considering entering into any such scheme to first of all take the full prospectus of the scheme to their tax lawyer or accountant for a qualified and considered opinion.
Any scheme that is designed solely to avoid inheritance tax, or any other form of taxation for that matter, will be rejected by the Spanish hacienda (tax office) and will certainly not reduce the tax payable by the beneficiaries. Those schemes being advertised as Spanish Inheritance Tax avoidance will certainly attract the attention of the Hacienda and may fall foul of the authorities.
Any scheme must have independent commercial or other financial benefits before it would be acceptable to the Spanish authorities as being legitimate for tax planning purposes. Certain schemes that allow property owners to borrow funds using their property as security for the loan, may qualify for relief from inheritance tax. However, the primary purpose of taking the loan in the first place must be commercial or financial and this must be implicit at the outset.
Examples of commercial or financial purposes are:
Using the funds to pay off an existing mortgage, freely spending the funds borrowed, purchasing another asset or freely and independently investing the funds to provide an income.
Once you are satisfied that the scheme is tax efficient you must request details of the terms and conditions of the loan and have these examined and approved by a lawyer.
Request that all the costs inherent in the scheme be quantified in writing. This must cover all initial costs, ongoing annual costs and management fees, interest rates and margins, exit penalties and any loan establishment fees.
Most of these schemes require the payment of interest only. Ensure that the investment vehicle being used has a proven track record, is AAA rated and has enough liquidity to meet the ongoing annual costs.
There are schemes that do not even require the payment of the interest being charged on the loan. The interest and associated costs are simply rolled up and added to the original loan. However, under these schemes the interest rate and costs being charged are generally much higher and very soon the debt could outstrip the value of the property. This is a dangerous scenario especially when property prices have entered a period of negative growth.