With recent increases in property prices in Spain, especially on the popular



Costas, many expats now find themselves asset rich but with additional the cost

of living rises, possibly poor in the pocket. In addition these property price

increases can be a potential nightmare for your inheritors as in Spain inheritance tax

has to be paid on the death of the first partner and the property cannot

be sold until it is paid. With the maximum tax-free allowance being in the region a paltry

16,000 euros the surviving partner could find themselves with a very hefty bill to pay.

A Spanish equity release scheme could help to resolve both of these problems.

Firstly you can release some cash to spend on whatever you wish and additionally

invest a sum of money to help top up your current income. Secondly you

can reduce the assessable value for your inheritance tax by the amount of the loan.

For instance , a secured loan of 80% of the value of your Spanish property

could reduce the inheritance tax by between 90% and 95%.

There are many well known banks offering Spanish equity release schemes, such as Barclays,

Jyske Bank, ABN Amro, Rothschilds and Landsbanki amongst others. As you would

expect they all have slightly different schemes with varying loan

to value amounts,(i.e. the percentage of the value of the property they will

lend you.) Varying amounts you can draw in cash and varying percentages

that you can take as income per annum. But they are all have the same

underlying system,

Basically they will lend you, for instance 75% of the value of your property,

of this you may be able to take up to 25% in cash, some banks only allow you

to take 10%, and the remainder is placed in a managed portfolio with

the intention that it pays the interest on the loan and also makes a bit on top

to provide you with an income. In theory if the interest rate on the loan

is 4.5% and the investment bond makes 8% per annum then you should be

left with an income of 3.5% from the amount invested.

Spanish Equity Release Example:-

Property Value 750.000 euros.

LTV of 75% 562.500 euros ( amount borrowed.)

Cash taken @ 20% 112.500 euros

Amount invested 450.000 euros

Annual interest at approx 8% 36.000 euros

Interest on loan @ 4.5% 25.310 euros ( annual repayments.)

Potential annual income 10.690 euros

Potential weekly income of 205.58 euros.

The setting up costs are around 3% and are generally taken out of the cash allowance.

Of course this looks very good on paper but it can be risky for instance if the

interest rate on the loan goes up and your investment portfolio performs

badly then you may be left in the position were you cannot meet the

repayments on the loan and your home could be in jeopardy.

However historically the spread between loan interest rates and investment

returns are at worse just a few percent in favour of the investment

and at best there can be quite a substantial difference.

Of course it goes without saying that a Spanish equity release scheme is

not something to be undertaken lightly and good reliable advice from

an established and regulated financial advisor is imperative. However

it can be one way to not only reduce inheritance tax liability but

also to unlock some of the equity tied up in your Spanish home and

hopefully provide a reasonable top up to your weekly income which may help to

combat the cost of living rises for those on a fixed income.