Avoiding Inheritance tax on property

[ashtondav]

I saw an advert from a company called Wincham advising to buy property thru a UK company to avoid spanish IT. If this is correct do i really need an advisor? Surely i could just form a uk company and buy the place, correct?

[El Cid]

Depending on the property, location and residency there might well be no tax to pay anyway.

Sid

[katy]

I saw an advert from a company called Wincham advising to buy property thru a UK company to avoid spanish IT. If this is correct do i really need an advisor? Surely i could just form a uk company and buy the place, correct?

Hate to be the bearer of bad news but Wincham are listed on www.costa-action.co.uk as being unregulated and having dubious schemes.

[Curiouse]

I once made a general enquire from Whitcham about 2 years ago and i stil get pestered regularly , phone calls and emails . The pone calls are all very polite but i could do without them , they wont give up , the number is always a UK 0044 number .

The principle is that if the property belongs to a company then the company never dies so inheritance tax is never charged .You naturally pay to have this set up but i wouldn't be surprised if sooner or later that particular loop hole also will be closed and if you are unfortunate enough to still be living then you will have paid out for nothing . .

If you look into the allowances you have in the region you will be surprised how many actually wouldn't have to pay as they are extremely generous .

[Enrique]

Hi Curiouse,

The emails should have unsubscribe option............

The post don't open mark up as unknown and and return to sender.............does this work in Spain

[katy]

According to some, transfering your assets to avoid tax is looked on as tax evasion in Spain and is an offence.

[Curiouse]

Hi Curiouse,

The emails should have unsubscribe option............

The post don't open mark up as unknown and and return to sender.............does this work in Spain

Dont know about returning post , soon as i see its from Wincham i drop it in the bins next to the post box before getting back in my car . I always use unsubscribe for emails i don't want but they do not always work , cant remember if i had the option with Wincham but i would have if it was available .

[ashtondav]

I am non resident so very few allowances. Quite an expensive house so there would be a significant IHT bill.

Leaving aside the witcham example and the possibility of legal change is the option of creating a UK company a valid way to avoid the tax, cost effective and easy to do? And if not the latter, do you recommend any UK based advisor who could do the necessary paperwork. I'm expecting a cost of about 1% of purchase price - reasonable?

[El Cid]

I am non resident so very few allowances. Quite an expensive house so there would be a significant IHT bill.

The residency issue has been challenged by the EU just like they did over CGT.

They considered it unreasonable to give different allowances to residents that are not available to non residents.

Lawyers are already challenging IHT taxes on behalf of non residents and succeeding. You can expect changes within the foreseeable future.

Sid

[alpujarran]

..The principle is that if the property belongs to a company then the company never dies so inheritance tax is never charged ....

Are dead people allowed to own a company in the UK? If not, then the ownership will probably have to change. The latest anti tax-fraud/money-laundering/terrorist-financing laws (of which the 720 is only a part) specifically target people owning property but hiding behind a company or a trust.

Tread carefully

[John & Kath]

..The principle is that if the property belongs to a company then the company never dies so inheritance tax is never charged ....

Are dead people allowed to own a company in the UK? If not, then the ownership will probably have to change. The latest anti tax-fraud/money-laundering/terrorist-financing laws (of which the 720 is only a part) specifically target people owning property but hiding behind a company or a trust.

Tread carefully

It's a simple principle really you do not own the company you own shares in the company and when the "first event" occurs your shares which would only be only a couple of nominal value £1 shares would be left in your will to whomever you wish so no value to charge IHT on. The theory being that the nuclear family could own the company between mum dad and the 2 kids. 3 shares each for for mum and dad 1 each for the kids. Dad pops his cloggs leaves one share to each child and one to mum. Mum still out votes the kids so retains control if there is any falling out but the nominal value is minimal so no IHT.

[alpujarran]

It's a simple principle really you do not own the company you own shares in the company

Things have obviously moved on since my time in the UK. Back then it was the shareholders who owned the company.

and when the "first event" occurs your shares which would only be only a couple of nominal value £1 shares would be left in your will to whomever you wish so no value to charge IHT on. The theory being that the nuclear family could own the company between mum dad and the 2 kids. 3 shares each for for mum and dad 1 each for the kids. Dad pops his cloggs leaves one share to each child and one to mum. Mum still out votes the kids so retains control if there is any falling out but the nominal value is minimal so no IHT.

So the idea is that a Limited Company with shareholder capital of £8 can somehow buy a property worth - let's say for example - £800,000. I suppose it could maybe borrow the £800,000 [interest-free] so that its net asset value remained at £8.

Or it could buy the property for a fiver - leaving some spare in the bank for running costs. But then the net-asset value would be about £100,000 per share. And it seems that the taxman would never consider that the purpose of such a transaction was to avoid tax. Seems like a good idea.

[El Cid]

Seems like a good idea.

Or just another scam that is actually tax avoidance and hence illegal.

The link that Katy gave says it all.

Barge poles and touch come to mind.

Sid

[alpujarran]

Sid - we finally agree on something

[John & Kath]

It's a simple principle really you do not own the company you own shares in the company

Things have obviously moved on since my time in the UK. Back then it was the shareholders who owned the company.

and when the "first event" occurs your shares which would only be only a couple of nominal value £1 shares would be left in your will to whomever you wish so no value to charge IHT on. The theory being that the nuclear family could own the company between mum dad and the 2 kids. 3 shares each for for mum and dad 1 each for the kids. Dad pops his cloggs leaves one share to each child and one to mum. Mum still out votes the kids so retains control if there is any falling out but the nominal value is minimal so no IHT.

So the idea is that a Limited Company with shareholder capital of £8 can somehow buy a property worth - let's say for example - £800,000. I suppose it could maybe borrow the £800,000 [interest-free] so that its net asset value remained at £8.

Or it could buy the property for a fiver - leaving some spare in the bank for running costs. But then the net-asset value would be about £100,000 per share. And it seems that the taxman would never consider that the purpose of such a transaction was to avoid tax. Seems like a good idea.

We looked at this back in 2004 and it is a bit more complicated than you describe but although we have a UK limited company whose articles of incorporation allow the ownership of property the full Wyncham scheme is much more complicated and involves registration of an ultimate owning company in a US state which has particularly favorable tax laws. Of course there has to be something in it for them so they seem to be nominee directors of one of the companies on the way and undertake Company Secretary duties all for a fee. Needless to say we did not touch their plan with the barge pole nor did we put the house in the ownership of our company, if rules change in Spain or UK it could be costly and complicated to unwind. There are safer ways and less complicated ways to structure the ownership to achieve minimal IHT exposure.

[El Cid]

Sid - we finally agree on something

Actually we agree on quite a lot of things!

Sid

[ashtondav]

There are safer ways and less complicated ways to structure the ownership to achieve minimal IHT exposure.

Excellent news! Can you post a link or expand slightly?

[Mike.M]

I concluded that the only reason I'd put property into a Ltd Co or SA would be because it was a commercial enterprise.

I looked at the Wincham proposal last year. And it works along the lines of (apologies if it's a bit rambling) .....

At the notario's you must make it clear that that it is an 'investment' into the company; this means the tax is only 1%. Try not to transfer into a 'trading' company but create a new company .... you can do this online at Companies House for £18, using the model articles of association ... turn around in 24hrs. Ensure that the only shareholders are the same as the ownership on the escritura and that the division of shares is the same ratio as the escritura. Also if you start a new company, best ensure it doesn't trade as this enables you to declare the company dormant which will make the admin much simpler in terms of annual returns and accounts. HMRC makes special provision to dormant companies solely set up as a container for a property. Note that Companies House and several different areas of HMRC have a different view as to what a 'trading' company is, but if you’re not going to trade then probably the Companies House definition is the more important. You will have to declare the company dormant to both Companies House and HMRC.

Right that’s Blighty sorted out, now to deal with Spanish bureaucracy. And you will need a number of documents and need to involve the Foreign and Commonwealth Office for Haig Apostille http://www.fco.gov.uk/en/about-us/what- ... alisation/. I’m not saying this is 100% right but it is the result of feedback from English and Spanish lawyers and accountants and our local Notario. All of this you can organise yourself or use a ‘turn key’ service … I have had a number of quotes ranging between £2,000 and £5,000 excl. VAT. and excludes fees for notary, Plus Valia, property registry and 1% tax. Much cheaper to organise it yourself.

Documents you will need are below and all will need a combination of translation, certified, notarised and Haig Apostille. All translations will have to be notarised; in addition, official documents will have to also be certified, notarised and Haig Apostille stamped. You will need a mix of these documents to bot transfer the property at the Notario and to obtain a CIF or open a bank account, if required.

Articles of Association
Memorandum of Association.
Certificate of Good Standing from Companies House
Certificate of Incorporation from Companies House
Signed minutes of Directors meeting assigning them the power to perform the transaction. There is some debate about this as the model articles have this stated in them but it seems to vary from Notario to Notario.
Signed minutes of Directors meeting assigning them the power to obtain a CIF and open a bank account (if required).

If you've never heard of a Certificate of Good Standing, read about it here -> http://www.companieshouse.gov.uk/infoAn ... ding.shtml You can request additional info to be put on here and I would strongly advise adding Directors Names, Issued Capital, Shareholders names and Shareholding. This will help demonstrate to the Notario that it's a straight forward transfer as the current property owners, directors and shareholders are one and the same.

Companies House will also provide a cerification of certificates, so you can bypass the lawyer haveing to certify etc. and send the result straight to the FCO, see here -> http://www.companieshouse.gov.uk/infoAn ... Cert.shtml

You will also need to obtain a CIF for the company from the Hacienda and appoint a fiscal representative resident in Spain. There will be annual tax filing duties in Spain (obviously a zero return and the UK. You’ll need the CIF before going to the Notario’s. It's all a little more complicated but I've lost the will to expand more.

Other things to note are:

Since the 2008 budget the Chancellor abolished Benefit in Kind Tax for Directors of Property Owning Companies if they stayed in the property.

You only escape CGT if a company is Trading.

The value of the transfer into the company is shown as a credit to the Directors Loan account i.e. money owed to you personally. You can use your tax free gifting allowance of £3,000 a year or £5,000 upon marriage to your son. No money needs to change hands as your son will build up a creditor account with the company. Obviously the 7 year rule comes into play hear in terms of gifting.

Technically, this vehicle doesn’t escape UK IHT obligations as the Director’s Loan Account is considered part of the estate on death.

If owning a property is the only reason you file a tax return in Spain, then this will no longer be required of you personally.

Items for further research to validate if true or not are:

There may be a benefit to operate a trading company as you can claim Tax Relief on the expenses for the business. This can include Community Fees, Water, Electricity, Suma, repairs and possible flights and car hire for the Directors.

If the company is trading, then will the Spanish authorities consider it in a different light and / or to what extent will it complicate its administration and or legal obligations.

My first reaction to this is that; if for instance you rented it out and income was credited to the UK company, all of a sudden you have created a UK Company with a Permanent Establishment in Spain. This has a consequence of having to register for VAT, escalate your filing obligations to the hacienda, probably have to register a branch or office with the Mercantile Registry and of course your accountancy fees would shoot up …. seems E2,300 per annum for the accountant is a rough figure. There had been a suggestion that to avoid this you could exploit the framework surrounding payment of Royalties to the owning company. Not an area I’m familiar with but if it requires you to get an exemption under the EU Interest and Royalties Directive then there are certain issues of control and ownership that have to be met …. Looks a bit of a minefield to me, especially as the Directive make reference to exploitation for Tax Evasion and Tax Avoidance purposes. As legislation is complex and can change to your detriment. it needs a far better man than me to look at it!

[El Cid]

As legislation is complex and can change to your detriment. it needs a far better man than me to look at it!

I think I would rather pay the tax than cope with all that

Anyway, the chances are that just after you have set it all up they will change the law again and it wont be a valid solution any more!

Sid

[katy]

Agree, it's a no, no unless you have millions...and they will already have their schemes.

Loopholes do get closed. Look at all these people who fell for QORPS and getting hit for 55% tax