Budget Day – Why swapping the UK for Spain could make financial sense. British people on the verge of moving to Spain watched the Budget on 20th 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, 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,” says Kieran Byrne, CEO of HomeEspaña. “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 those who are relocating, we 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 Budget.
Council Tax – This is a key difference between living costs in the UK and Spain, where it is considerably cheaper. In the UK, many councils 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)! Kieran Byrne commented “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 per cent for properties over £2million.
In Spain, tax payable on a resale purchase is known as Transfer Tax, or ITP, and since January 2013 is levied at 8 per cent of a property’s price up to €400,000, 9 per cent on the value from €401,000 to €700,000, and 10 per cent of value over and above €701,000.
In Spain, VAT (known as IVA) is levied on new-build property at 10 per cent, as well as AJD tax (often referred to as Stamp Duty) at 1.5 per cent. In the UK, new-build property attracts no VAT. Kieran Byrne believes “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 per cent to any purchase price.”
VAT (IVA) and Duty – The standard rate of VAT in the UK is currently 20 per cent, the reduced rate 5 per cent. In Spain, the standard rate of VAT (IVA) is similar at 21 per cent, with reduced rates at 10 per cent and 4 per cent. 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. Meanwhile, in the UK taxes on alcohol and cigarettes, so-called ‘sin taxes’, are subject to automatic increases and due to rise by at least 2 per cent over inflation until 2014 – bar 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).
At HomeEspaña we help people buy property in both the South Costa Blanca or North Costa Blanca.
