The Isle of Man based fund management company has announced the launch of SITIRS – the Spanish investment transfer and income release scheme as a solution to the problems posed by Spanish Inheritance Tax (IHT).
Charles Walton, a spokesman for TPG, said rising inflation following the advent of the Euro, as well as a reduction in income for many expatriate residents because of low interest rates or poor returns from pensions, had seen the phrase “asset rich but cash poor” banded around with more frequency.
Walton said: “The effect of this has encouraged expatriates to attempt to access the capital currently ‘locked’ into their property in order to ease their situation.
“The rise in property values has also caught out many UK resident’s who own Spanish properties with unexpected tax consequences. IHT does not work the same way in Spain as it does in the UK and to rub salt in the wound, there may be no relief in the country of domicile for Spanish tax suffered.”
Spanish IHT does not tax the estate of the deceased, but taxes the real value of the portion received by each heir or legatee. Transfers between spouses – common in the UK – are not exempt from IHT in Spain. IHT in Spain applies to Spanish sited assets.
Currently upon death, the beneficiaries of all owners of Spanish property including holiday home owners resident in the UK, would be liable for Spanish IHT given that the asset – the property, is clearly a Spanish sited asset.
TPG has arranged asset backed lending facilities with UK based lending sources, and have created effectively a self-funding interest only loan, for owners of unencumbered Spanish properties.
Should a loan be considered one would want to ensure that there is not any or at least very little risk to the property. The asset backed loan is unlike a conventional mortgage, and although a charge would be registered against the Spanish property, the lender will look at both the property and the investment portfolio created from the proceeds of the loan as collateral.
Walton added: “If a charge is legally registered against the property, then the outstanding amount would be deducted from the property value, before arriving at the NET amount subject to Spanish IHT. Given the lender has two assets as collateral supporting the loan, repayment of capital is not required, thus ensuring that the maximum debt is always registered against the property, thus mitigating as much IHT liability as possible.”
Loan to values range from 75% through to 95% dependent on the value of the property and the loans are issued in Euros so as to protect clients from any adverse currency risks. The lenders margin’s vary from between 1.5% and 1.75% above Euribor which would mean variable rate loans today of between 3.65% and 3.90%.
Fixed and capped rate options are also available, and there is an arrangement fee of 1% of the loan value. Minimum loan values start at €250,000 and rise to €3m.