Before you pack your bags to enjoy your retirement in sunny Spain, it's important that you have full information on the potential pitfalls and costs which you may encounter.
It is not always the fulfillment of a lifelong dream to live in a sunny climate by the sea that leads people to move to the Spanish coast when they retire. In many cases Spain is considered to be the most affordable option, in terms of property prices, heating bills, grocery shopping and things to do in the great outdoors.
The main issues to be considered by all of those who opt to retire to Spain tend to relate to the cost of property ownership, whether relating to purchase, maintenance, or ongoing tax liability. This article will set out the main issues to be considered when purchasing property in order to retire to Spain.
Perhaps the most expensive element of retiring to Spain is the purchase tax payable on the purchase of real estate. The nature of the tax payable differs according to whether or not the property has ever been sold in the retail market. In the case of resale properties, the tax payable is called “impuesto sobre transmisiones patrimoniales” and is paid to the tax authority in the autonomous region in which the property is situated.
If the property is being sold for the first time, then the tax payable is a value added tax (now 10%), payable to central government. In addition, a stamp duty is payable to the respective autonomous community of between 1% and 1.5%. In the case of a resale the purchase tax (payable to the respective autonomous community) will be between 6.5% and 10%.
All of the above percentages are subject to frequent change in the current economic climate.
In order to complete a property transaction, documentation must be signed before a Notary. Each document signed before a Notary is an “Escritura.” The Notary will charge a fee, which will be determined by reference not to the amount of time spent, but the nature of the transaction and the number of pages that the “Escritura” extends to. For example, a Notary’s fee for the purchase of an apartment in Barcelona can range between 500 Euros and 1,000 Euros approximately.
Once purchase tax has been paid, the transaction must be registered on the corresponding property register. As a very rough guide the property registry will charge a fee equal to approximately 65% of the Notary’s fee.
One of the issues that will need to be determined upon purchase is whether the property tax has been paid up to date in relation to the property in question. All Spanish residential and commercial property is subject to a tax equivalent to a council tax or business rate, which is calculated based on a rateable value set out by the local town hall, according to established rules.
The strict position is that the seller of the property is liable to the tax, but in practice a purchaser completing a transaction in the first half of the year may agree to prorate the liability to property tax during that year. Unpaid property tax is met by an automatic debt recovery procedure not requiring formal court proceedings, resulting in a charge being registered against the property and a forced sale of the asset to recover the debt.
Depending upon the amount of pension income being received it may not be necessary for a non Spanish national, resident in Spain, to make an annual tax declaration. Currently only those receiving more than 14,000 Euros in annual pension income need submit an annual tax declaration in Spain.
Many retirees choose apartments or small houses in a development, rather than detached family homes. These developments are subject to a service charge in order to maintain the communal areas. The level of service charge one pays is determined by the costs of running the community being divided equally between all of the property owners. This is set out in the “Escritura” when you purchase and is registered at the property registry. Failure to make payment of the service charge is usually met with a series of demands followed by court proceedings.
Whereas owner-occupiers such as retirees are relatively likely to keep up payments, before one purchases it is important to be aware of the degree of indebtedness of other owners, as those who do pay will be subsidising the debtors. It is possible to demand previous years’ accounts and minutes of previous AGMs, to determine the level of cooperation between the owners. A poorly run development may well be the reason for lower prices.
To conclude, retiring to Spain is not simply a matter of packing your bags and heading off into the sunset. It is prudent to be aware of the potential pitfalls before you embark on your journey, and to seek good quality independent legal advice in relation to your specific circumstances.
If you would like to discuss your retirement to Spain, please contact Jonathan Eshkeri.