A major consideration when you buy property in Spain is the ownership structure. You need to think carefully about who is going to appear on the title deeds as the owner(s) and prepare well in advance, particularly if you plan to set up a company to buy the property. You have several ownership options, which are discussed together with their pros and cons in this article.
Whatever the ownership option you choose you’ll need to take expert advice on tax implications, both in Spain and in your home country. Double taxation treaties exist between Spain and many countries, but this doesn’t necessarily reduce your fiscal exposure.
Before deciding on an ownership structure for your property, consult a fiscal advisor both in Spain and the country where you’re resident. Ask about the tax implications of each option when you purchase, during ownership (some countries tax on assets you own abroad) and when you sell. It’s also worth asking about inheritance tax too.
It’s also worth deciding on the ownership structure prior to signing the purchase contract. This should include the names of the people who are buying (or the company). If you aren’t sure or haven’t come to a final decision, ask your lawyer to include a clause giving you the right to include other buyers in the title deeds. This step ensures the vendor is fully informed – it isn’t unusual for vendors to refuse to sign title deeds when they discover that they’re selling to someone who doesn’t feature on the purchase contract.
You have the option to place the property in just one owner’s name. Sole ownership offers total control over the property with no need to take anyone else in account when making decisions, for example, on the sale. Taxation matters are also relatively straight forward. On the other hand, inheritance tax liability will be higher for heirs.
This is the most popular option for most foreigners who buy property in Spain with the title deeds typically featuring the names of the couple. Advantages include the fact that the assets are shared and inheritance tax obligations alleviated since only half the property forms part of the estate to be inherited. But dual ownership can incur complications in the case of a divorce, for example, and both parties must agree on any decision affecting the sale or transfer of the property.
Spanish law allows for as many owners as you like on title deeds. Joint or multi-ownership makes a good option if you’re buying as a group (for example, several siblings) or as a family. Having more than two owners also spreads the inheritance tax burden. However, the more people there are on the title deeds, the less control each one has over the property and coming to an agreement such as whether to sell the property may be difficult.
In the 2000s, setting up a company to own a Spanish property was a much favoured option, particularly among buyers spending upwards of €500,000. However, the introduction of international money laundering regulations and the sharing of fiscal information has led to a notable drop in the number of people who choose to own a property through a company.
Several company options exist. You may wish to set up a Spanish registered company – if you choose this vehicle, allow extra time for completion since it can take time to establish a company in Spain. Or a company registered in your home country – possibly a quicker option, although not necessarily. The third choice is an offshore company, although in recent years, this type of company has found itself under the Spanish tax authorities’ microscope with widespread inspections. International money laundering regulations also mean few Spanish legal and fiscal advisors are keen to put their names to this option.
The benefits of owning property in Spain through a company include:
Anonymity of ownership. For various reasons, you might prefer to be the non-disclosed owner of the property and a company structure allows you to do this. However, bear in mind that this anonymity only runs as far as the land registry – ownership must be disclosed if the Spanish tax office or legal system require it.
Tax mitigation. One of the biggest reasons to choose to buy through a company is that it reduces the tax burden. This is especially true for inheritance purposes when the shareholders are non-resident in Spain.
However, although you might be a ‘hidden’ owner and saving on taxes, going with the company option for ownership does have its drawbacks, such as:
Negligible tax mitigation. The introduction of the exchange of fiscal information as exists, for example, between the UK and Spain, has meant tax bills are no longer quite so small.
Set-up costs. These can be high – for example, establishing a limited company in Spain (Sociedad Limitada, S.L.) involves an initial outlay of at least €3,000 for the capital plus notary and business registry fees.
Running costs. Depending on the company and its assets, these range from a few hundred euros to thousands a year.
Using a company to buy property in Spain requires specialist legal and fiscal advice, both in Spain and your home country as there are wide-reaching tax implications. Always consult an expert beforehand.