Why swapping the UK for Spain could make financial sense10/04/2013
Why more British retiring or considering retirement should consider living in Spain.
British people on the verge of moving to Spain watched the Budget in March with particular interest, keen to see how economic conditions in Spain now compare with those in the UK. The result is, if they’re retired so not needing to work, they’re likely to be inclined to head for the Spanish sunshine.
Even expats in Spain have been intrigued to know what the UK government, now under pressure to kick-start economic recovery, plans to do.
It’s normal for expats to compare the UK’s rates of tax and living conditions with those in Spain, where austerity measures are also being implemented. In Spain though, the effects are being felt more by Spaniards in areas of the country with high unemployment, and less by retired expats who are financially secure and living with other expats, not only from the UK but other countries, in established tourist resorts.
To help relocating Brits, Spain offer a timely comparison between some of the taxes related to property and living in the UK and Spain, including some that featured in the recent UK Budget.
This is a key difference between living costs in the UK and Spain, where it is considerably cheaper. In the UK, many council’s have frozen rates for the past two years but hopes that George Osborne might force them to do this for another year did not materialise in his Budget.
Council tax in Spain, known as IBI, or SUMA in some parts, did increase slightly in 2012 but it still remains comparatively cheap. Homeowners in Spain also pay an annual garbage collection tax. As a guide, annual council tax for a typical three-bedroom villa in Costa Blanca will be around €450 and garbage collection €80, making a total of €530 (£453) payable to the council annually.
In the UK, annual council tax for a three-bedroom semi-detached home in the South-east is three times that, namely around £1,500 (€1,755)!
For many retirees on the Costa Blanca, such reduced council tax means making ends meet is easier, something that is increasingly difficult in the UK where inflation remains close to 3 per cent and interest rates on savings and annuities are dire.
Stamp Duty (SDLT)
The last stamp duty holiday in the UK ended in March 2012 and applied to first-time buyers buying under £250,000 – pressure on Osborne to re-introduce this did not happen, although he did announce a scheme to help first-time buyers get finance. Stamp duty rates in the UK are currently nil for property costing £125,000 and less, 1 per cent from £125,001 to £250,000 and rise on a sliding scale to 7% for properties over £2m.
In Spain, tax payable on a resale purchase is known as Transfer Tax, or ITP, and since January 2013 is levied at 8% of a property’s price up to €400,000, 9% on the value from €401,000 to €700,000, and 10% of value over and above €701,000.
In Spain, VAT (known as IVA) is levied on new-build property at 10%, as well as AJD tax (often referred to as Stamp Duty) at 1.5%. In the UK, new-build property attracts no VAT.
Despite the taxes to buy property being higher in Spain, prices per square metre in the Costa Blanca are so much lower than in most of the UK that even once you’ve factored in the higher taxes, Spanish property still remains very affordable.
On lower value property, such as those under €100,000, buying taxes remain relatively low – in fact, they can often cost you less than the effect a swing in the £/€ exchange rate can have on your purchase. Buyers just need to ensure they budget properly by adding on 10-11% to any purchase price.
VAT (IVA) and Duty
The standard rate of VAT in the UK is currently 20%. In Spain, the standard rate of VAT (IVA) is similar at 21%, with reduced rates at 10% and 4%.
Chancellor Osborne announced a scrapping of autumn’s planned fuel duty rise in his Budget – not surprising given the current cost of fuel, which is around £1.40 a litre for unleaded petrol and £1.45 a litre for diesel. In Spain, unleaded is currently around €1.54 (£1.32) a litre and diesel €1.41 (£1.21) a litre.
In the UK taxes on alcohol and cigarettes, are subject to automatic increases and due to rise by at least 2% over inflation until 2014 – Except beer. Wine and alcohol, both in bars and supermarkets, remain considerably cheaper in Spain. As a comparison, on 19th March, the cheapest bottle of Campo Viejo Rioja from a British supermarket was £6.00, while in a Costa Blanca supermarket the same or equivalent bottle would cost €2.99 (£2.55).
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