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.