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Company Owned Property
– The Hidden Nightmare
Previously it was very popular to purchase high-value property in Spain, by which we mean property of value in excess of €500.000,00 in a company structure. The company structure consists of a Spanish limited company, the shares of which are then owned by another offshore company (often in a location such as Belize, Gibraltar or Delaware, USA).
The rationale behind purchasing property in such a structure is to avoid paying Capital Gains Tax (CGT) on the sale of the property and Inheritance Tax (IHT) on the death of one of the proprietors.
These taxes are avoided by selling the shares of the offshore company, rather than the property, meaning that for the purposes of the Spanish Land Registry there has been no change in ownership.
Before purchasing property in such a structure you should be aware of the following:
• The costs of incorporating the companies and the annual running costs of maintaining two companies can off-set the tax "savings" you are hoping to make, particularly if you intend to keep the property for a period of time.

• Spain recently ratified the EU Disclosure Directive making it compulsory for lawyers and financial advisors to disclose a change in the share ownership of such an offshore company to the Spanish tax authorities.

• The House of Lords in the United Kingdom has ruled that a UK tax resident who owns shares in a company (offshore or otherwise) registered as the titleholder of foreign property, will be deemed to be receiving a "benefit in kind" for the purposes of UK income tax.

• Recently the Spanish tax office set up a new specialized unit dedicated to the investigation of tax fraud. One of the sectors singled out for close inspection is that where properties are owned through such a company structure.

• The EU Savings Directive came into force on 1st July 2005. The Directive imposes reporting obligations (to tax authorities) upon banks & other lending institutions in the EU and in some EU dependent jurisdictions including the Cayman Islands, Gibraltar, Jersey and Guernsey.

 

For further information please call us at Greenfields and we would be happy to discuss this with you.