- March 15, 2017 at 4:36 pm #196727
My mother (86 years old, and becoming infirm) owns a property in the Balearics, with an “official” value of around €540k. She is resident in the UK – and is no longer fit enough to travel to Spain herself – so has granted me a Poder so that I can look after her interests in Spain on her behalf.
I am an only child, and named as the sole beneficiary in her Spanish will.
I understand that on my mother’s death, in addition to her estate’s liability for UK IHT, I will become liable for Spanish IHT. I also understand that in the Balearics, direct inheritors such as myself who are also EU residents are entitled to a large reduction in IHT.
Clearly as a UK resident, I am an EU resident for now. However, after Brexit it seems that I will lose that status, and therefore be liable for the full amount of IHT on my mothers’ death. I am given to understand this will amount to around €120k.
I have looked at obtaining Spanish residency, but that requires spending 183 days per annum in Spain for 5 years, and that is currently impractical for me. I have an entitlement to Italian Citizenship, for which I have applied – however that would not confer Italian residency without me living in Italy for at least 183 days per annum.
I have discovered that Malta offers “Maltese Ordinary Residency” after just 3 months to any EU Citizen who maintains an address in Malta – without there being any minimum amount of time residing in Malta.
I am therefore investigating this further. However two questions arise: (a) If Brexit follows in the hard way it looks to, would I actually have the problem I foresee? and (b) Would this class of Maltese Residency count as EU-residency for Spanish IHT ?
I look forward to a response
- March 18, 2017 at 11:49 am #196896
Ray, have you read these guides? They might help you understand the issue better, though nobody yet knows what Brexit will bring. I doubt anyone here can answer your question about Maltese Residency.
- March 19, 2017 at 8:08 pm #196925
Why don’t you sell your mother’s property and just pay capital gains?
- March 19, 2017 at 11:21 pm #196926
Thanks Mark for pointing these out to me, I had looked at both of these documents, although I had not read them in detail. I received detailed advice on the IHT situation for this property from a Spanish solicitor working in the UK about 12 months ago. I will look at these articles in detail, although at first sight it appears there may be discrepancies from the advice I was given – however I may be wrong.
I understand that advice about Maltese residency would be unavailable here – but that was not what I was asking. I was asking about if (or more precisely: how I could find out if) the Spanish authorities would recognise this as EU residency. The Maltese advice I am getting cannot predict how this would be treated in Spain!
Eghamhigh – Yes we had looked at selling it and paying the CGT. However there are three issues here:
(a) the CGT would still be substantial, as the capital gain since the property was acquired in 1983 has been calculated as €490k.
(b) there is an issue with the location of the garage within the plot, which has come to light in the last few months. This prevents a Cédula de Habitabilidad from being issued, and would therefore mean that we would find it extremely difficult to sell – or at least sell at a value close to it’s “official” value. We are currently looking at having the garage demolished and rebuilt in the correct location in order to get this resolved.
(c) My wife, being an Italian citizen, and not being able to prove any right to UK residency may well have to leave the UK after Brexit. If this happens, then access to a property in Spain could be very helpful for us.
- March 21, 2017 at 10:55 am #197103
Spain has a program called the Golden Visa. If you own a property worth more than €500K you can get residence in a few months. May be worth it to investigate this route. Your mother can sell the property to you.
- March 21, 2017 at 3:27 pm #197113
Thanks for this Larquia,
We did look at the possibility of me buying the property from my Mum – but the tax payable made that unworkable: my solicitor worked out that at the point of sale, my Mum would have to pay tax on a capital gain of €490k – and I would have to pay the property transfer tax in addition. The total tax bill for this would be around €160k, if I recall correctly.
We also looked at my Mum gifting the property to me – but that would would add in the complication of a gift tax, which would bring the total tax bill up to €200k!
If I inherit before Brexit, my Spanish IHT would probably be around €7k – if I inherit after Brexit, under current rules, it would be around €125 – unless I can get residency in an EU country before I inherit.
- March 26, 2017 at 10:40 pm #197455
If I were you I really would sell the property now and allow your mother to distribute the cash how she see fits. It is the simplest option and doesn’t require a whole host of para legals that will skim off their slice.
Market the property at a price that will sell including the planning issue that it currently has.
In so many cases, with family and friends I see a free asset (and that is what it is to you) being attempted to be disposed of at the highest price with all the additional complications that come with it. In so many cases it never gets disposed and external factors then mean that the beneficiary only get a fraction of what could have been obtained.
Surely your Mother would want the satisfaction of seeing this asset being realised and her only child using the money to live life, before it is to late.
- March 27, 2017 at 9:59 am #197458
Many thanks, JPT for your suggestion.
We have indeed looked at disposal now as an option. Here is how the numbers stack up:
1. Catastral value €540k
2. Current actual market value (estimated): €400k
3. Cost to resolve planning issue (estimated): €30k
4. Acquisition cost in 1983 (purchase of land, plus building costs): €50k
The current market value estimate was based on a quick sale, but before the planning issue came to light. So this would probably have to be reduced to €370k to take that into account.
Spanish CGT would be calculated as 35% of the €490k gain – which will come to over €170,000. At least this is likely to eclipse any CGT payable in the UK.
So disposal would mean my Mother taking just €200k for the asset, which if she then gave to me, would be further taxed as a life-time gift in the UK should she die before she reaches 93 years of age.
The other aspect is that by disposing of the asset, I am losing the ability to take an income for it before I retire, and losing that as a retirement option for myself.
On the other hand, if I inherit the property as a resident of an EU country, then I will have only a few thousand Euro of IHT to pay in Spain, and I get to keep the asset, which I can then continue to benefit from.
This is why I am looking at ways in which I can maintain my EU residency after Brexit. Even if this is impossible, the IHT bill as heavy as it is, will be about €50k less than the CGT bill my Mum would have to pay on a sale.
- April 9, 2017 at 3:29 pm #198445
Why not transfer the property into a Company and have the shares transferred to you
- April 9, 2017 at 4:19 pm #198446
Would such a transfer not be subject to Spanish CGT and property transfer tax?
- April 14, 2017 at 2:36 pm #198868
Recent European Court Decission made a good advance on equaling all EU residents in Spain regarding Inheritance Tax as they were being taxed under National rules and therefore not being bebefitted from regional reductions on taxable amounts.
After Brexit, UK nationals will lose this benefit
- April 16, 2017 at 11:54 am #198891
My understanding is that those over 65/pensioners are exempt from CGT on sale of home, presumably if registered as a resident.
The EU ruling on equality of treatment of non-Spanish EU citizens would apply to this, I guess.
Any of this correct?
- April 16, 2017 at 11:56 am #198892
I think that any questions that include the words “after Brexit” are pretty much not worth asking.
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