As a result of Mr. Zapatero's PSOE party succeeding at the recent general elections this penal tax remains a major financial contingency for all individuals owning assets, including property, in Spain. In the manifesto of the defeated Partido Popular, there were proposals to lessen the impact of this tax, which led to some people believing that the tax may have been abolished. As a result many individuals have decided to ignore the implications of this tax and have not taken prudent steps in their overall tax planning. This is very unwise and could lead to extreme financial hardship for beneficiaries.

Over the years many methods have been used to lessen the impact of this tax. Some of these have been illegal and lead to greater problems and higher taxation at a later date. These methods have included the non-declaration of deaths, under declaring the value of assets and using powers of attorney after the death of the issuer. With the introduction of new European tax laws on disclosure these practices will become a thing of the past. No professional advisor will risk high fiscal penalties, the loss of the right to practice, his livelihood and even imprisonment for the sake of assisting clients in evading taxation.

There are legal ways to reduce, and in many cases, avoid this tax and any person with property and/or other assets in Spain should take professional advice and arrange their affairs accordingly.

Equity Release. Many companies are offering this facility to individuals owning property in Spain. However, this should not be confused with schemes offered in the United Kingdom and certain other countries. Elderly individuals are able to accept a lump sum payment in lieu of the "sale" of their property, and may continue to live in the property rent free for the remainder of their lives. On their deaths the beneficiaries have no financial interest in the property as full legal title belongs to the "lender". This form of arrangement does not presently exist in Spain.

Most of the equity release schemes in Spain are in effect re-mortgages. The capital advanced is secured by the lender registering a charge against the property. Some schemes offer "interest only" terms but others will require repayment of capital over an agreed period. If entering into such an arrangement with the intent of investing the funds into an investment product, designed to produce income, then great care should be taken in selecting the correct investment. Costs will be incurred, both initially and annually. Stamp duty and initial fees will be deducted from the loan, ongoing costs (loan interest and in some cases administration and management fees) will have to be met from the investment return. Loans can be taken in low interest currencies thereby reducing annual cost, however, this then introduces a currency risk.

In considering such a scheme caution must be taken, have all the costs itemized in writing and do not be misled by "targeted" or "projected" returns from balanced or medium risk investments. Remember, higher returns mean higher risks.

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