IT IS now believed that many of the 50,000 Irish people who have bought property in Spain over the last 10 years may now transfer their mortgage to Spain. This news comes amid concerns of a more aggressive approach from Spanish Revenue authorities which could mean higher tax bills.

The majority (estimated at 80%) of those 50,000 people who bought a property in Spain did so by re-mortgaging their home or other Irish property to fund the purchase.

While this is a perfectly acceptable method of funding and may save a couple of thousand euro at the time of purchase, it is likely to add considerably to their annual Spanish tax assessment, the inheritance tax bill for their beneficiaries (including spouse) as well as putting their Irish home at risk as interest rates continue to rise.

The inheritance tax exemption that applies between spouses in Ireland does not apply in Spain.

This can come as a tremendous shock for the surviving spouse and can put them under severe financial pressure. Rates of inheritance tax can also be much higher in Spain than in Ireland depending on the circumstances.

Having a Spanish mortgage on property in Spain is likely to reduce the inheritance tax bill for the beneficiaries as the net asset (total value of the property less encumbered mortgage) is used to calculate the liability.

Inheritance tax is calculated on the net assets inherited. Therefore if there is a Spanish mortgage it is netted off the value of the property before calculating the inheritance tax, potentially saving thousands during this stressful time.

Many Irish investors are taking out Spanish mortgages, rather than putting themselves at risk through equity release on their Irish property. This is more appropriate as it matches the security with the borrowing - if the investor is unable to meet the mortgage repayments, then the threat of repossession exists. While this would be an extreme situation, it is clearly preferable for that threat to apply to the Spanish investment property rather that the primary residence at home in Ireland. Taking out a Spanish mortgage should also reduce the annual wealth tax liability. All property owners in Spain are liable for wealth tax. Again, this is calculated on the value of net assets in Spain so if there is a Spanish mortgage on your Spanish property then the tax is only calculated on the net value of the property. An Irish based mortgage would not be taken into account.

According to Elaine Higgins, managing director of IFG Spain, "There is an old saying that there are only two inevitabilities in life - death and taxes. Spain is no exception. Even if you are not resident in Spain, you will still be affected by Spanish taxes which are quite different to Irish taxes. You would be wise to find out exactly how these taxes could affect you and seek ways to minimise their impact. The tax system is not always easy for foreigners to understand and although it is not mandatory when you own only one property, it is advisable to appoint a fiscal representative in Spain to look after your affairs and ensure that your returns and payment are kept up to date. Failure to pay taxes when they are due can lead to penalties and even ultimately the loss of your property if you neglect the issue."