A place in the sun: Our guide to owning Spanish property

Baker Tilly’s Gary Heynes and Edward Emblem on the tax implications of owning a property in Spain.

Representatives of the Spanish government visited London recently as part of a drive to encourage overseas investors to purchase property in Spain. Several foreign governments have already begun to undertake larger scale investments, and it is hoped individuals will follow suit in a boost to Spain’s holiday housing market.

If UK resident individuals do regain an interest in buying property in Spain, they will need to be aware of the potential exposure to Spanish and UK taxes in respect of both the property itself, and any associated Spanish assets, such as bank accounts held overseas in connection with the property.

What are the pitfalls?

Would-be vendors will first need to consider how to structure property ownership. The most straightforward route may well be to hold the property personally, but ownership through a company is also a popular option to help manage Spanish inheritance rules.

Spanish companies are taxable at rates varying from 20% to 30% on their profits, and individuals who own another UK-resident company need to be aware that owning an active company overseas can also affect tax rates in their UK company.

There is no taxable benefit-in-kind for the UK resident individual who has a Spanish company for the sole function of owning the overseas home, but companies with mixed use (ie with other activities) can give rise to complex benefit-in-kind issues if not managed properly.

Investors considering the use of trusts should note that these and other forms of separating beneficial from legal ownership are generally not recognised in Spain, although there may be scope to operate a company which itself is held within a trust.

Generally, on acquisition of a property overseas, no UK taxes arise on the purchaser, although the pre-owned assets tax should be considered where gifts of funds from parents, for example, are involved.

Spanish taxes on acquisition include IVA (the Spanish VAT) on newly constructed property, or property transferred between companies; and property tax, which is generally payable by individuals not subject to IVA. Either way, individuals should be prepared to face a charge of 8% on acquisition.

In addition, other costs, such as Spanish stamp duty at 1.5% to 2%, notary fees, land registry fees and legal fees should be taken into consideration. All receipts for the cost of purchase should be retained, as evidence will be needed when calculating the UK tax position in the future on sale.