How is the House Valued?

By a firm of local professional valuers appointed by the bank. If this value exceeds €2,000,000 then a second valuation would be undertaken by a different firm. They are instructed to give an opinion as to the property's market value and this will take into account the most recent sale prices achieved by similar properties in the area.

Will I Still Own the House?

Yes, the lending bank simply register a charge against the property.

What If I Want To Sell the House?

No problem. The outstanding loan would have to be repaid and this would be done at the same time as completion of the sale. If the investment portfolio were greater than the loan outstanding, then you would receive the full sale proceeds of your property plus the surplus on the investments. If the value of the investments were less than the loan outstanding the shortfall would be taken from the proceeds of the property sale and you would receive the net sale proceeds.

Can I Rent Out My House?

Yes, but no rental contract could be for more than eleven months duration.

What Happens When I Die?

If you own the house jointly then upon the first death the plan continues in the name of the surviving partner. Upon the second death the beneficiaries would inherit according to your stated wishes. If they wished to keep the property then they could continue the plan in their names, if they wished to sell they would receive the full net sale proceeds. In either case the full benefits of the scheme would be effective in inheritance tax planning in Spain.

Will My Children Inherit A Debt?

Only if they wished to keep the property, then they would inherit the property and the debt attached thereto. They could continue with the plan if they wished, but we find that most children wish to sell and they would obviously receive the full net proceeds from the sale of the house.

I Don't Know This Bank….and What If They Go Bust?

Most unlikely as it is an "A" rated bank in Luxembourg, however, it did happen to Barings and BCCI. The big difference is that you have borrowed from the bank not deposited funds with them. Your investment portfolio is totally segregated and protected. In all probability your loan would be transferred to another bank under the same terms and conditions if you so wished.

What If the Investment does not Perform as Well as you suggest?

This is always a possibility as markets can go down as well as up. That is why we recommend that our clients only use low risk investment strategies that can limit any potential downside. Use investments that are proven and regulated with the majority being in "AAA" rated bond funds. If you wish to draw a regular income, do not take more than is advisable or else capital value could be jeopardized.

What If There is a Change in Spanish Inheritance Tax Law?

The main purpose of our scheme is to give access to capital and to provide extra income with the saving of potential inheritance tax an additional benefit. Tax laws can always change but at present inheritance tax is payable on assets located in Spain and a potentially high liability can arise. Our scheme does remove this risk and, should the law change, the basic reasons for entering the scheme are still valid. I do not believe that inheritance tax will be abolished and if changes are made in the Law these may reflect higher levels of personal allowances and therefore slightly lower levels of tax becoming payable.

Can The Bank Call in the Loan at Any Time?

No. The loan can only be called in if you are in breach of the terms and conditions contained in the Loan document.

Will The Bank need to Re-value my House in the Future?

The bank would have no reason to seek a re-valuation of the property as the borrower must at all times insure the property against any damage that might devalue the property. However, the lender can at any time have the house valued by an independent third party. The property owner can also have the property re-valued if they wished to increase the amount of the loan.

What If the Spanish Property Market Declines? Will I Have to Repay any Money?

In addition to having a charge against the property, the lender is also secured by a charge against the investment portfolio. Therefore, the property value is only a part of the lenders overall security. Normal fluctuations in property prices will be of no concern to the lender.

Can I Increase my Loan if my House Goes Up in Value?

Yes.

Who is Managing the Investments?

The investment portfolio is made up by individual funds and these can number up to ten. The managers of the portfolio are the bank, Landsbanki, and as this portfolio constitutes the largest proportion of their security, it is in their own interest to ensure that the funds are secure and perform successfully.

How Long Does It Take for this Arrangement to get Set Up?

If all the legal paperwork for the property is in place and there are no problems encountered then we are looking at six to eight weeks. If any of the legal documents are incomplete and/or licences have not been obtained then the time taken will be dependant upon the efficiency of the local authorities.

How Much Are the Costs?

The initial costs incurred with regards to the bank loan are:

Banks establishment fee: 1.00%
Stamp Duty: 1.00%
Notary, Legal and Valuation charges
(depend upon value of property and loan) 1.00% to 1.50%

The initial costs with regards to the investment portfolio are incurred through the use of a tax efficient Capital Assurance plan (described in detail elsewhere) and these are spread over the first 5 years of the plan. 1.20% p.a. for 5 years

The annual interest charged on the loan will be Base Rate plus 1.75%.

Do I Have to Pay Costs in Advance?

No, all the above costs may be added to the loan or deducted from the equity released.

What Are the Penalties For Pulling Out?

On the bank loan, 2.00% in the first year and 1.00% in year two. Zero thereafter.

On the Capital Assurance, any of the initial fee that remains uncollected over the first five years. Zero thereafter.

If I spend All of the Released Money will I ever be Asked to Repay It?

No.

Will I Have to Pay Tax on Any Income Taken?

This would depend upon your personal Tax circumstances. The investments are held in a Capital Assurance and this has major tax benefits. The tax authorities treat any withdrawal as part repayment of original capital and part gain. The capital element is not taxable. The gain element is subject to income tax but is reduced by 40% if the plan has been held for two years. After five years this reduction is increased to 75%. In summary, if any tax is payable it would be minimal.

Will I be Taxed upon the Released Money?

No, this is classed as a repayment of capital.

Do I have to Declare the Released Money on my Spanish Tax Return?

No. However, if you use the funds released to purchase investments in your own name or other declarable assets these will have to be shown on your tax return.

If I leave the released money in Luxembourg will the Tax Authorities be informed?

Not unless you wish them to be.

If I Take the Loan in Swiss Francs, can I change it later?

Yes.

Can I have my Loan Interest rate fixed for more than One Year?

Not at Present, but this is currently being investigated.

How Much Say can I have in the Choice of Investments?

There are three investment portfolios (Defensive, Balanced and Active) and you can choose from one of those. You have no say in the constituent parts of the portfolios.

How Much can I Borrow?

Up to 100% of the value placed on the property.

How Much can I take in Cash?

Up to 25% of the amount loaned.

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