I own a property in Spain which I use for holidays and occasionally rent out to friends and family.
When I bought it 12 years ago, a friend advised me to do so via a limited company, registered in Britain, in order to reduce the tax I needed to pay.
He put me in touch with an agency set up for this purpose, which helped me make the purchase. At the time I assumed this must be above board as they were a legitimate business, but now I am not so sure.
A holiday home abroad can be an attractive investment – but buyers also need to be aware of the tax liabilities that come with it, and make sure their ownership structure is above board
I am unsure whether I am paying all the correct taxes, and I have heard of other British property owners in Spain being fined when the authorities have found out about their limited company status.
This worries me as I am planning to sell the property in the next few years, and do not want to get caught out by an estate agent or lawyer when I give them the details.
Where do I stand legally? Is it possible for me to transfer it out of the limited company and into my own name? And would this mean I paid less tax if I sold it? Via email
Helen Crane, This is Money, replies: Buying a property abroad via a limited company is a perfectly legal structure, and in some situations it can lessen the fees and taxes that the homeowner needs to pay.
However, doing so comes with certain financial obligations, both in the UK and in the country that the property is located.
To complicate matters, some of the rules around owning property in Europe, and the associated taxes, have also changed since Brexit – and these will be different in different countries.
Understandably, this has you confused, and you want to make sure that everything is above board to prepare for a potential sale in a few years’ time.
I asked León Fernando del Canto, an international tax barrister at Del Canto Chambers, to explain the situation in Spain, and to outline the taxes and other fees you currently need to pay if you own a property there, and what would happen if you decided to sell.
Leon Fernando del Canto replies: There are absolutely no issues with owning a Spanish property with a company registered in the UK.
Owning property via a limited company may well be an efficient structure to avoid wealth and inheritance tax in Spain, but the option must be carefully assessed by a tax adviser in the UK and Spain.
British companies may be subject to non-resident taxes in Spain, as well as having an obligation to submit tax declarations in the UK.
All the relevant tax implications of owning property through a company structure are explained under the Double Taxation Treaty signed between the UK and Spain.
This treaty is specifically designed to prevent paying taxes on the same income.
The UK company must have a Spanish Tax Number and must file annual and/or quarterly income tax returns as a non- resident company without Permanent Establishment, if no Permanent Establishment exists.
The shareholders, directors and employees or the UK company should also pay rental when staying at the property too.
In addition, it is necessary that the UK company should file accounts and comply with the UK tax regulations, as advised by your UK accountant.
All this means that you remain above board, and there will be no problems when you come to sell your property down the line.
With regards to transferring the property to the shareholder, this can be done in two different ways.
As well as paying non-resident taxes in Spain, those who own property via a limited company should also file accounts and comply with tax regulations in the UK
One way is for the UK company to be liquidated and the property to be assigned to the shareholders on liquidation.
A 1 per cent stamp duty tax (known as AJD in Spain) must be paid, together with the 19 per cent capital gains tax, which will be payable in Spain and the UK — although Double Tax Treaty relief will be applicable.
The other option is for the company to sell the property, in which case 19 per cent Capital Gains Taxes and a 6.5 per cent to 11 per cent Transfer Tax (ITP) will be applicable.
Independently of the option chosen, the company must be brought up to date from a tax compliance point of view.
When this has been done, I recommend getting a qualified Anglo-Spanish tax opinion and calculating the costs, advantages, and disadvantages of changing ownership versus keeping the corporate structure before making a decision.
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