Being tax efficient on a spanish property
Discussion
Sorry for being vague.
Bought the property a couple of years back. Also set up a company for a legitimate trading business (which is now no longer trading as a business, but the company is still registered). I've been told that I can transfer the deeds to the property into my company, I'd pay the mortgage through the company as a directors loan I believe, and then any rent gained is held in the company. If I then want to take the money out then I can as it is repaying the directors loans and so I avoid some sort of gains tax? And I'm also led to believe that it can help avoid or minimise a couple of other Spanish taxes that are due to be paid on the property as it is a (relatively) new build, and help minimise inheritance tax?
As you can see, the person who told me about it wasn't very sure on details, so just looking to see if any PHers have gone through a similar process, and whether it's worth it in the long run, and what the pitfalls are.
Bought the property a couple of years back. Also set up a company for a legitimate trading business (which is now no longer trading as a business, but the company is still registered). I've been told that I can transfer the deeds to the property into my company, I'd pay the mortgage through the company as a directors loan I believe, and then any rent gained is held in the company. If I then want to take the money out then I can as it is repaying the directors loans and so I avoid some sort of gains tax? And I'm also led to believe that it can help avoid or minimise a couple of other Spanish taxes that are due to be paid on the property as it is a (relatively) new build, and help minimise inheritance tax?
As you can see, the person who told me about it wasn't very sure on details, so just looking to see if any PHers have gone through a similar process, and whether it's worth it in the long run, and what the pitfalls are.
If you (as a private individual) sell your property to anyone or anything you will have to pay VAT (currently 7% I think) on the transfer, plus all the notary fees etc etc. Total cost will be between 8 and 10%. Plus, there used to be and probably still will be, is a retention of some of the sales proceeds to cover any potential capital gains tax liability you might have. Best advice I can give you is to talk to a good tax lawyer.
Edited to add that it is of course the buyer who pays the VAT. I used 'you' because you are selling/transferring to your self! You, as the seller pay the capital gains tax.
Edited to add that it is of course the buyer who pays the VAT. I used 'you' because you are selling/transferring to your self! You, as the seller pay the capital gains tax.
Edited by Incredible Sulk on Thursday 2nd April 10:30
Eric, yes the company is registered with Companies House.
B16JUS, I believe the process can cost up to £5000.
I don't think the process is the same as selling the property to my company. I believe it is more along the lines of transferral of deeds, if the two things can be different? I'm pretty sure they are though, as I say above, one law firm has said they can transfer the deeds for about £5k, plus an ongoing administration fee of a few hundred. However I would like to get some impartial advice before I go through with the process.
B16JUS, I believe the process can cost up to £5000.
I don't think the process is the same as selling the property to my company. I believe it is more along the lines of transferral of deeds, if the two things can be different? I'm pretty sure they are though, as I say above, one law firm has said they can transfer the deeds for about £5k, plus an ongoing administration fee of a few hundred. However I would like to get some impartial advice before I go through with the process.
jammy_basturd said:
Eric, yes the company is registered with Companies House.
B16JUS, I believe the process can cost up to £5000.
I don't think the process is the same as selling the property to my company. I believe it is more along the lines of transferral of deeds, if the two things can be different? I'm pretty sure they are though, as I say above, one law firm has said they can transfer the deeds for about £5k, plus an ongoing administration fee of a few hundred. However I would like to get some impartial advice before I go through with the process.
I'm not sure how that is going to work. If you transfer the deeds - The 'Escrituras' - then surely you are transferring ownership, which is a sale. That would have to be done at market value I imagine. If you transferred at anything other than market value, ie a nominal amount, then you night avoid some VAT now, but if the tax authorities latch on to it............B16JUS, I believe the process can cost up to £5000.
I don't think the process is the same as selling the property to my company. I believe it is more along the lines of transferral of deeds, if the two things can be different? I'm pretty sure they are though, as I say above, one law firm has said they can transfer the deeds for about £5k, plus an ongoing administration fee of a few hundred. However I would like to get some impartial advice before I go through with the process.
It used to be the case in Spain that you avoided tax by buying a property for X, and then having the declared value on the escrituras as X minus quite a lot, thus avoiding VAT and notary fees on the buyers side and CGT on the sellers side. This is happening less and less as the tax authorities really started to crack down on it.
jammy_basturd said:
Eric, yes the company is registered with Companies House.
B16JUS, I believe the process can cost up to £5000.
I don't think the process is the same as selling the property to my company. I believe it is more along the lines of transferral of deeds, if the two things can be different? I'm pretty sure they are though, as I say above, one law firm has said they can transfer the deeds for about £5k, plus an ongoing administration fee of a few hundred. However I would like to get some impartial advice before I go through with the process.
OK - so you end up with a UK company owning a property in Spain.B16JUS, I believe the process can cost up to £5000.
I don't think the process is the same as selling the property to my company. I believe it is more along the lines of transferral of deeds, if the two things can be different? I'm pretty sure they are though, as I say above, one law firm has said they can transfer the deeds for about £5k, plus an ongoing administration fee of a few hundred. However I would like to get some impartial advice before I go through with the process.
On the assumption that you are a UK tax resident, the disposal of the property by you to the company is a Chargeable Event and could lead to you being liable to Capital Gains Tax on the proceeds of the disposal. If you try to "engineer" a transfer of the property for less than its Market Value, the Revenue can step in and order that the transaction be taxed AS IF the property had ben disposed of at its proper Market Value. If you cannot come to an agreement as to what that Market Value is, the Revenue will appoint their own valuer to assess it.
Once the property is "owned" by the company, any income derived from that property will become the income of the company - not your income personally.
A company pays Corporation Tax on its profits. This company's sole purpose is to own and manage an investment proprty. It therefore could be deemed to be an "Investment Company" and will therefore not be able to avail of the lower rates of Corporation Tax applicable to small trading companies. It would therefore pay Corporation Tax at the higher tax rate of 28% rather than 21%.
If it could be shown that then property was actually a "Holiday Let" rather than a rental property, it might be able to convince HMRC that it is actually a trading activity rather than an investment activity and be able to pay tax at the lower rates.
The next problem is the extraction of the company's profits by the directors/shareholders of the company. Whatever method they use, these is a good chance that they will be subject to UK Income Tax and/or NIC - depending on whether they are UK tax residents and whether they extract the money in the form of salaries or dividends.
If and when the company finally disposes of the property, the company could also be subject to a Capital Gains Tax charge.
Thanks for the advice Eric, much appreciated.
Do you know how directors loans comes into all this? From what I heard the gains were due to myself putting money into the company in the form of a directors loan each month in order to pay the mortgage, and thus as rental income comes in I can then withdraw this money as a way of the company paying off its directors loans.
Do you know how directors loans comes into all this? From what I heard the gains were due to myself putting money into the company in the form of a directors loan each month in order to pay the mortgage, and thus as rental income comes in I can then withdraw this money as a way of the company paying off its directors loans.
I'd be careful, there was a case brought by HMRC recently where a guy owned a property in Portugal off shore as it was "more tax efficient" but HMRC said that as this company was controlled from the UK, it falls under UK tax law, and as such they were after him for benefit in kind for staying in his own villa!
I am just in the process myself and having been through the pro's and cons I am owning it personally.
I am just in the process myself and having been through the pro's and cons I am owning it personally.
jammy_basturd said:
Thanks for the advice Eric, much appreciated.
Do you know how directors loans comes into all this? From what I heard the gains were due to myself putting money into the company in the form of a directors loan each month in order to pay the mortgage, and thus as rental income comes in I can then withdraw this money as a way of the company paying off its directors loans.
If the company now owns the property, is it legally possible for the mortgage financing the property to remain in the name of the individual?Do you know how directors loans comes into all this? From what I heard the gains were due to myself putting money into the company in the form of a directors loan each month in order to pay the mortgage, and thus as rental income comes in I can then withdraw this money as a way of the company paying off its directors loans.
Obviously, Spanish law may differ from English/Scottish Law but you would need clear legal advice on this.
IF you create a large director's loan account in the company's balance sheet which equates in size to the personal morgtage amount remaining on the property, then, in theory, the company's payments to you to cover your mortgage repayments would be looked on as a repayment of the director's loan. Therefore, you would not be taxed personally on these payments.
However, all the rental income being received by the comany will be taxed in full.
What outgoings will the company have to offset against this income?
Will the company be paying interest on the loan it received FROM YOU?
Eric Mc said:
What outgoings will the company have to offset against this income?
None I guess, other than maintenance fees associated with the property.Eric Mc said:
Will the company be paying interest on the loan it received FROM YOU?
That I'm not sure, I guess not.What do companies such as the one Wurls posted do then?
Break the law?
You need good legal advice on this before you go down this route.
I can see very little tax advantage in going down this route esepcially regarding the situation in respect of UK taxation.
I know absolutely nothing about Spanish law or Spanish tax and you would need to seek the advice of professionals from that country too.
You need good legal advice on this before you go down this route.
I can see very little tax advantage in going down this route esepcially regarding the situation in respect of UK taxation.
I know absolutely nothing about Spanish law or Spanish tax and you would need to seek the advice of professionals from that country too.
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