How to reduce tax bill on joint-names property abroad

[Pere]

We are a married couple, I’m Spanish and she’s a non-EU national.  I’m a UK high-rate tax payer and she has no income at the moment.

We want to buy a property in Spain to rent out and would like to minimise the corresponding tax bill.  We have been told that we should purchase the property as joint-names and put the maximum allowable rent under her name to use up her tax allowance.

First question is: if I put my wife as a co-proprietary but I’m the only mortgagee, would there be any tax implications (like a  lifetime donation/gift to my wife)?

Second question is about tax relief on the mortgage.  I’m wondering if I can apply for full relief on the interests as the whole mortgage in on my name although my property ownership would be capped to 50%.

Thank you

 

[Mark Stücklin]

Hi Pere,

As you are a UK-tax resident you need to look into the tax implications from a UK perspective, consulting a tax specialist in the UK. This forum is more about the Spanish end.

That said, I discussed your questions with Spanish lawyer and regular legal contributor to SPI, Raymundo Larraín, in the light of which I can make some general comments (no substitute for getting proper legal advice).

If you want to know about renting and its impact on Non-Resident Income Tax as per Art. 24.6 of the IRNR: non-resident tax reliefs please read a comprehensive list of the ‘new’ tax allowances for non-residents on renting out on the back of the ECJ’s ruling of September 2014. Check out Raymundo’s article Holiday Rental Laws under the heading “Changes in Taxation Brought about by European Legislation” which includes the relief of interests on (Spanish) mortgage loans (you can only apply interest relief on the mortgage on what you own, namely your 50% on the property):

Gift tax / donation needs a UK perspective if you are UK tax residents. “Two non-residents on buying property in Spain and putting it under joint names (despite husband paying for 100%) does not attract Spain’s Gift tax (ISD),” says Raymundo. “Most non-residents I know of buy property in exactly this manner and I’ve never heard any of anyone paying Gift tax (ISD) because of the joint names issue.”

“Another matter is if he decides later on, once the property has been purchased, to re-arrange the shares i.e. to donate his wife his 50% in which case it would indeed be a donation attracting Gift tax. To legally elude this taxation I suggest he follows a dissolution of joint property ownership (DJPO) which is tax-effective and its benefits are explained in detail in my article (slightly outdated mind you, it’s from 2011): Dissolution of Joint Property Ownership in Spain.”

I hope that helps.

[Author]

Posts