Please note
that the information provided in this article is of a general interest
nature and intended as a basic outline only. You are well advised to
contact a professional for advice specific to your circumstances.
Nothing contained in this article should be seen or taken as the writer
or publisher providing legal or financial advice.
The very reliable expatica.com reported on 08.05.06 that according to a
new survey one in five Britons and a third of Germans are considering
retiring to Spain. Madrid based property consultants, King Sturge, have
carried out the survey by interviewing 800 Britons and 800 Germans over
50. 22% of Britons said they were considering moving to Spain, while
35% of Germans said they had considered the same option.
High on the list of incentives, which are increasingly being
offered by local estate agencies, are healthcare and social services
facilities. The King Sturge report concluded that 44 % of Britons and
34 % of Germans said these would attract them to retire in Spain.
So the demand for retirement in Spain is there. How do you fund your retirement?
Reports circulating from a US financial planner indicate that 40% of
those who retire aged 55 with over $1m need to return to work 5 years
after they retire to fund their lifestyle.
So to sustain your lifestyle in Spain will you really need more than
$1m or £533,000? I know this may sound strange, but surely £1 m ($1.8m
or €1.4m) is enough to retire on?
Experian, the UK credit agency, has reported that in the UK there are
about 50,000 millionaires. Many hundreds more are added to this number
annually. Let’s be clear, this sum has at its root an over performing
property market where even a reasonable family house in the South East
or North West of the UK can comfortably hit the magic number.
If you sell – having no mortgage to redeem or capital gains tax to pay
- what level of income could you hope to receive if you invested your
£1m?
A financial adviser has indicated that the best way to work out how
much money you need is to multiply your required income by 25. This
would mean that your £1m would deliver you, subject to income tax,
around £40,000 per annum.
Amazingly, many experts suggest that a retired couple will need at
least £2m (€2.9m) in the bank to give themselves a pre-tax income of
£80,000 - and that’s without the costs of acquiring the retirement
apartment or villa in the sun.
Whether your nest egg has been accrued through canny pension
contributions, the sale of a family business, shrewd property
investments or an inheritance or two, we have identified below a series
of likely expenses that you’ll need to factor into your retirement
planning.
The all important 3 bed apartment or villa in Spain
There has clearly been a boom in prices on the Spanish Costas, and
whilst Spain continues to deliver great value for money, prices have
risen. As anyone, who has been active in the property market anywhere
in Europe over the last fifteen years, already knows, values can rise
and fall and demand may be inconsistent. Above all a property, as the
adage goes, is only “worth only what someone is prepared to pay for
it”.
On the Costa del Sol a modest property will costs you from €350,000
(circa £235,000) for an apartment and from €450,000 (circa £304,000)
for a villa. This will drop to €225,000 and €300,000 respectively on
the Costa Blanca.
Purchasing costs
As a yardstick, in Spain, you should budget for purchase costs of
approximately 10 to 12% on top of your agreed property purchase price.
This will cover legal fees, plus expenses including notary public fees,
land registry, stamp duty and VAT (called in Spain “Impuesto sobre el
Valor Añadido” or “IVA”) – which are set out in more detail below.
A property buyer is usually responsible for:
- Transfer Tax (or IVA plus Stamp Duty when buying from a developer)
- Property Registration Fees
- Notary Public Charges
- Legal Fees
- Plus
Valia Tax – This is a local municipality (Town Hall) tax based on the
increase in the value of the land from when it was last sold. Although
this is usually the seller’s responsibility it is a one off payment and
we have seen circumstances where this tax is paid in an agreed division
between the buyer and seller or solely by the buyer. To avoid any
confusion is important to decide at the outset of the purchase whether
the buyer should be asked to shoulder none, part or all of it.
A usual breakdown for the buyer is as follows:
Fees
-
Notary Public Fees. These are charged on a scale of fees which, in turn, depend on the price of the property.
- Property Registration Fees - Land registry. These are around 40% of the Notary charges.
- Legal Fees - are normally charged at around 1.00% to 1.50% of the agreed purchase price plus 16% IVA.
- Surveyor
Fees - Even if you are not purchasing with mortgage funds you may
obtain comfort from obtaining a Surveyor’s Report on your chosen
property.
Taxes
-
Transfer Tax – around 7% for second hand properties. Interestingly for
younger purchasers, the transfer tax reduces to 3.5% if the buyer is
below 35 years of age and the property is to be their main residence.
- IVA
is charged at 7% for the purchase of a new property. However, if you
are purchasing a Parcela or plot of land, garage or commercial building
the IVA rate increases to 16%.
- Impuesto Actos Juridicos Documentados or “Stamp Duty” is around 1% for new properties.
- Plus
Valia - see above. Payment may from a few hundred €s for smaller
properties to several thousand €s for large villas or plots. You should
note that if the seller has held the property for a long time –
particularly through the 1990’s and early 2000’s – a period of
substantial growth - the Plus Valia may well be very high when
calculated from last sales price to this sales price.
Furnishing Costs
The costs of furnishing a three bedroomed home can obviously vary
greatly, but to avoid the tortuous process of importing furniture from
“home” a budget in the region of €20,000.
Annual Domestic Taxes, Utility Bills and Personal Expenses
-
Impuesto Sobre Bienes Inmuebles or “IBI” is a local Town Hall charge
and effectively an annual real estate tax. IBI’s are similar to “Rates”
in the UK. Your legal representative should obtain copies of previous
bills from the seller of a resale or second hand property.
- Community
charges. These charges will be rendered if you buy a property on an
Urbanisation. The “community” will maintain the gardens and swimming
pools. The costs of their work and staff will be covered by these
charges. In large formal Urbanisations these charges may be quite high
but they may also include the provision of water to your property.
- Basura - Rubbish Collection tax. This annual tax is payable by all property owners to the local Town Hall.
- House
and Contents Insurance - It is compulsory to have fire insurance if you
have a mortgage. Generally, it’s not as expensive and, perhaps, a
little less all encompassing than the similar product in the UK.
- Do
not forget about Wealth tax which is payable annually. It is based on
the value of the property and income – either notional or actual -
derived from the property.
For a three bed roomed apartment or villa – depending on whether you
have you own heated pool and air conditioning - you will need to budget
for the following domestic costs and expenses – these are obviously
very general in nature and are affected by year round or temporary
living and actual consumption:
Electricity - bi-monthly circa €200
Gas - unless you
receive gas directly you’ll purchase “bombona” from a delivery van
these are around €12.50 each and may last a week or two depending on
consumption.
Water - from around €70.00 per month depending on consumption and supply.
Telephone – A relatively modestly used combined fixed line telephone
and ADSL will cost circa €75.00 per month. A mobile phone whilst useful
can be maintained on a pay as you go arrangement with recharges
available in most petrol stations and supermarkets from as little as
€10.00 per recharge.
Green fees – Depending on your budget, membership of various Golf Clubs
can be purchased. However, if you are not planning to play that
regularly healthy savings can be made by purchasing green times from
intermediary sales businesses that bulk buy green times and sell them
on at discounts. On the Costa del Sol saving can range from 15% to 25%
of the usual green fees as charged by the Club.
Gym Membership – depending on the facilities - €50 per person per month seems usual.
Health bills – an all inclusive private health policy can be obtained for around €75 per person per month.
Cars - A car is essential in most regions – other than City centres. A
good vehicle will cost circa €20,000. Monthly running costs, depending
on fuel consumption, but including insurance and local car tax will be
around €200.00.
Shopping Basket – by purchasing from Spanish run supermarkets, such as
Mercadona, where quality is very good and prices are very competitive
the basic “basket” will costs a couple around €50.00 per week.
Leisure – this can really be “how long is a piece of string?” but you
can still eat out well for around €30.00 per head in the more touristy
areas and for as little as €10.00 per head “up country”.
So …. Is retirement to the Spanish Sun an option that deserves careful
consideration? For many thousands per year Spain ticks all the boxes
and delivers a treasured lifestyle that is really second to none.
© The Rights Group SL 2006 (Marbella)
Mark FR Wilkins
mark@therightsgroup.com
www.therightsgroup.com
(under review)
+34 600 343 917