Posts tagged with "renting property in spain"

Spainish Property Update Nov 2013

Statistics released by the Central Government Public Works on property purchase during the second quarter indicate a resurgence of interest in buying property in Spain. Figures demonstrated an increase in sales in five of Spain’s 18 autonomous regions. The province of Alicante saw a total of 3,543 properties purchased making it the most popular province.

Interestingly, 54% of buyers in the province of Alicante came from abroad compared to a national average of 17% across Spain. The British are the principal buyers, mainly retirees, followed by Belgian, French and Russian purchasers. Furthermore, according to figures from the National Council of Notaries up to June 2013, 70% of the homes purchased in Spain were paid for without mortgages, whereas, prior to the economic crisis only 37% of Spanish homes were bought with no loan. One reason for this adjustment can be attributed to the lower prices of property since the economic crisis. Indeed, a study conducted by the Pompeu Fabra University revealed some areas of Spain have seen price reductions of up to 50%. These price corrections have stimulated investors to consider property as a viable option when planning their financial future. You will see that this graph clearly indicates what has been happening since the property crisis in Spain. Spanish Property Sales graph 2006-2012

There has been a change in the financial tide and as the banks lose both trust and credibility, investors are beginning to modify their attitude and behavior towards their investments. In addition, the precarious state of stocks and shares has left investors facing the challenge to find the foundation for a more resilient investment. Furthermore, the ridiculously low interest rates currently offered to savers leaves no doubt that a more constructive approach to investment is required. In short, the lost rapport, damaged trust and jaded attitude towards traditional avenues of saving and investing has resulted in a revolution as individuals search for a healthier return on their money.

The emerging savvy investor is recognising the value of a tangible investment. For example, in Moraira and Javea you can purchase a stunning 5-6 bedroom villa in a prime rental location for around 483,000 to 647,000 euros including the 12.5% purchase cost. The historical income of a property of this nature is around 40,000-50,000 euros gross, per annum. Or perhaps you could consider a property with four bedrooms offering an income of 25,000-30,000 euros annually for a purchase price of circa 400,000 euros.

The highly desirable areas of Moraira and Javea offer unspoilt resorts with beautiful coastline backed by spectacular mountain ranges. The wealth of charm and tradition is maintained by strict conservation rules ensuring the area remains unblemished. Attracted by the sun-soaked, fun-filled promises of the Northern Costa Blanca area visitors are also treated to surprisingly stunning countryside with dramatic landscapes, green vineyards, almond groves and orange orchards. A short drive from the coastal towns leads you to between craggy mountains dotted with traditional white-washed villages. Follow the narrow mountain passes and head high to be rewarded with breath-taking views. As you ascend you may be lucky enough to discover, nestling on the mountain side, traditional family run restaurants offering simple delicious food and wine menus to satisfy the hungry traveller. These unique experiences along with one of the best climates in the world offering 300 days of sunshine each year ensure visitors repeatedly return to the unspoilt area of North Costa Blanca.

In order to maintain a healthy return on your investment you will need to consider how to manage the property. Some owners choose to hire a property management company who offer a complete package acting as the lynchpin between property owners and rental guests. They take responsibility for advertising, bookings, maintenance, cleaning and pool care. A reputable company will offer good service resulting in repeat bookings. A letting agent of this nature typically charge 30-40% for their service. On a property costing 438,000 as mentioned above, this offers you an income of around 24,000-28,000 euros, a return on investment of 5-6%. Alternatively, you could maximise your return on investment, increasing it to 7-8% by choosing to orchestrate bookings and advertising yourself. There are many small businesses in the area that you could arrange to take care of the changeover and pool care.

The chances of capital growth in the highly desirable Javea and Moraira area is very realistic. Prices have now stabilised and inflation alone will guarantee growth in your investment. Furthermore, vendors are pricing their properties realistically and are willing to negotiate. Javea, Moraira and the Bennisa Coast have sustained reasonable property sales throughout the crisis. The outlook is positive for this beautiful area of the Northern Costa Blanca.

If you are considering a purchase there are a number of elements to consider. For example, a north facing villa may rent well but if in the future you wish to sell it, you risk excluding Northern European buyers as they crave sunshine all year round. Engaging the services of a professional property investment advisor will ensure all gems of information are brought to light. By covering the complete market of properties available they will be able offer you the much needed insight and reveal the excellent opportunities available.

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Posted by on 11/16/2013 18:51:00

Rental Income targeted by UK Taxman

Worldwide tax authorities are trying
to increase tax revenue and income from renting is coming under close scrutiny.
If you are the owner of a property that is rented out, whether the property is
in Spain, the UK or somewhere else, you need to ensure that tax is being
correctly calculated and paid.

It’s not hard to make mistakes,
especially if the property is located in one country and you reside in another.

In the UK, HM Revenue and Customs
(HMRC) reckons that some £500 million is lost each year through tax
underpayment on rental income. It has launched a "Let Property Campaign” to
encourage landlords to put their declarations in order, whether errors have
been made genuinely or income has not been declared deliberately. The campaign
covers UK resident landlords, and includes holiday lettings abroad in countries
like Spain.

In a recent press release, HMRC
declared "HMRC will use information it holds about property rental in the UK
and abroad, along with information already held on HMRC’s digital intelligence
system Connect, to identify people who have not paid what they owe. For those
that fail to come forward, higher penalties – or even criminal prosecution –
could follow”. Well, there seems little doubt about HMRC’s attitudes there.

Undoubtedly, there is an
ever-increasing exchange of information, so you can expect UK authorities to
find out about Spanish property and vice versa. Certainly, co-operation with
tax collection will occur between UK and Spanish tax authorities.

So what are your tax obligations if
you are a UK resident who owns a Spanish property?
As a UK taxpayer, you
need to declare Spanish property rent on your annual UK tax return. Expenses
can be deducted. Any gains on sale need to be declared and taxed in the UK.
Overseas property must also be declared as part of your estate for UK
inheritance tax purposes.

In Spain, rental income from
property owned by non-residents is taxed at 24.75% (on net income after
allowable expenses for EU residents).

If you do not rent out the property,
or when it is un-let, a notional income is deemed to arise and tax is due on
this. When you sell the property, you will pay tax on the capital gain under
the savings income regime, at rates of between 21% and 27%.

The net equity value of the property
is currently liable to wealth tax if valued at over 700000 euros for
individuals and 1400000 euros for couples owning in joint names. A mortgage can
reduce its taxable value.

The property will be subject to
succession tax, and that can be expensive for non-residents in Spain.

UK and Spain apply their own tax
rules so the taxable amount is different in each country. You do not have to
pay tax twice, however. You can offset the Spanish tax paid, against the UK
liability, to avoid double taxation. If the UK tax is higher, further tax will
be due in the UK. If the UK tax is lower, you do not get a refund for the
difference.

This has looked at Spanish rental
income and gains for UK residents, but there will be similar tax considerations
if you are resident in Spain and own a UK property. If that is the case, you
are urged to take advice from an expert who specializes in both Spanish and UK
taxation.

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Posted by on 11/15/2013 10:30:00