[Chopera]

http://blogs.telegraph.co.uk/finance/jeremywarner/100024476/spain-is-officially-insolvent-get-your-money-out-while-you-still-can/

[Anonymous]

Whether or not he is right, it’s obviously bad news. I imagine that quite a few people who might have been thinking about buying a bargain in Spain will now think again if they’ve read that article.

[Anonymous]

@mark wrote:

Whether or not he is right, it’s obviously bad news. I imagine that quite a few people who might have been thinking about buying a bargain in Spain will now think again if they’ve read that article.

In my case it has made me think twice about a Spanish mortgage. If I take the mortgage out in the UK the money in my Spanish account will be negligible and the Bank won’t suddenly be able to raise my interest rate or call in the loan, for that matter.

Having said that, it has been a rather strange experience applying for a mortgage. One would have thought that the banks would have been desperate to get my business, as I have a very good credit record, but the deals on offer are not great. Bad business, in my book.

D

[Anonymous]

I’m very sorry to have to say this (and I’ve been saying it for the past five years), but you can’t possibly buy in Spain at this time.

And if you’ve filled out modelo 720, God help you.

[Anonymous]

@Rocker wrote:

I’m very sorry to have to say this (and I’ve been saying it for the past five years), but you can’t possibly buy in Spain at this time.

And if you’ve filled out modelo 720, God help you.

Why not? The worst that can happen is that the perceived value of the property goes down.

D

[Anonymous]

Daryl its really simple. The only motivation for a spanish bank to lend you money at the old normal conditions is if they can shift you one of their properties or a repo. If they start handing out loans to other properties with a less than at best 10% downpayment they are making their bank less secure and they want the opposite so they are asking for much higher downpayments. The financial state of the banks have reached the state that they dont “care” about your ability to pay the interest rate or how high it is…. every new customer is a liability. Trying to keep it simple. If you want more indept knowledge look up “fractional reserve banking” “new basel rules” and combine it with Spains situation.

[peterhun]

@Daryl wrote:

@Rocker wrote:

I’m very sorry to have to say this (and I’ve been saying it for the past five years), but you can’t possibly buy in Spain at this time.

And if you’ve filled out modelo 720, God help you.

Why not? The worst that can happen is that the perceived value of the property goes down.

D

.

Wrong. They can tax you for more than the property is worth, thats not an asset its a liability.

They demand to know the value of your world wide assets so they can take them from you – and they will.

[DBMarcos99]

More scare stories from the DT. Strange thought that even some in the comments point out that it’s the UK that needs to be worried about debt

it – the UK – has the highest external debt in the OECD (>400% GDP) and a very high public sector debt (by the common European measure, 90%, higher than Spain)

But there is another report on Spain, in the FT, which paints a far more optimistic picture. “Spain’s exporting prowess brightens economic gloom”. The difference between the UK and Spain is that the UK prints money and hopes something will turn up (with the growth in the American economy this may come about). The Spanish are out there trying to earn their salvation with export growth and enticing Russian tourists.
Here’s their twitter link text

Not all gloom in Spain: exports such as car parts, Rioja and software are booming: http://on.ft.com/10up8N7

[peterhun]

Well the IMF focus on the hard numbers, so I’m not going to gamble my life on Spain.

the UK that needs to be worried about debt

How is that going to stop Spain from becoming insolvent?

Besides, the UK also has the worlds second largest external assets, its own currency and its seen as a safe haven for investors from the Eurozone.

Also, we are talking about Government debt, those charts are for banks. The assets the banks can draw upon are other countries governments and banks, spread worldwide.

The assets the Spanish government can draw on are the working Spanish and foreign property owners.

[Anonymous]

@peterhun wrote:

@Daryl wrote:

@Rocker wrote:

I’m very sorry to have to say this (and I’ve been saying it for the past five years), but you can’t possibly buy in Spain at this time.

And if you’ve filled out modelo 720, God help you.

Why not? The worst that can happen is that the perceived value of the property goes down.

D

They demand to know the value of your world wide assets so they can take them from you – and they will.

Sorry, that’s just not true. As a non resident, the Spanish authorities have no right to ask for my assets, nor would I tell them.

D

[peterhun]

@Daryl wrote:

Sorry, that’s just not true. As a non resident, the Spanish authorities have no right to ask for my assets, nor would I tell them.

D

How much can they tax you each year before you give up your Spanish property? As a EU citizen the Spanish can do almost anything they like.

For instance, buyers of North Cypriot property have to pay compensation to Greek Cypriots, up to losing their UK homes. Residency is irrelevant in this case.

The EU is getting rid of barriers between countries, think what ‘banking union’ could mean.. taxing union.

[Anonymous]

@peterhun wrote:

@Daryl wrote:

Sorry, that’s just not true. As a non resident, the Spanish authorities have no right to ask for my assets, nor would I tell them.

D

How much can they tax you each year before you give up your Spanish property? As a EU citizen the Spanish can do almost anything they like.

Well, property tax in Spain is currently much, much lower than the UK, so they would need to increase it by a huge percentage until it was the same. This is the only tax that they can get away with, and if it is a property tax, it would affect all residents. If it was only for holiday homes owned by foreigners (i.e. non residents only), you would have a point, but I don’t see how the EU would allow this. Even if they did, my other assets still can’t be taxed by the Spanish. Only my Spanish property.

D

[katy]

Well, property tax in Spain is currently much, much lower than the UK

How have you come to this conclusion ❓

[DBMarcos99]

@katy wrote:

Well, property tax in Spain is currently much, much lower than the UK

How have you come to this conclusion ❓

Have to agree with Katy on this. Isn’t stamp duty very low in the UK?
Unless we’re talking council tax of course.

Another point on the article – he actually admits that the UK is in a state ” including other such well known fiscal basket cases as the UK and the US.”
So where do you put your money if you extract it from a Spanish bank?

[Anonymous]

@DBMarcos99 wrote:

@katy wrote:

Well, property tax in Spain is currently much, much lower than the UK

How have you come to this conclusion ❓

Have to agree with Katy on this. Isn’t stamp duty very low in the UK?
Unless we’re talking council tax of course.

Which is exactly what I was talking about. That’s the only tax to worry about, because it involves the future, which none of us know anything about. Tax charged when buying is a one off, so it is nothing to worry about in the long term.

D

[Anonymous]

@katy wrote:

Well, property tax in Spain is currently much, much lower than the UK

How have you come to this conclusion ❓

Sorry I should have been clear. I am talking about property tax per annum, not purchase tax.

D

[angie]

Daryl, although you say tax charged when buying is a one off, don’t forget that you have to pay 11% or so inc. legals as a one off in Spain, even for properties under £250k, whereas in the UK the same one off is around 1.5% to 2% on the same value property including legals, a big difference.

Then, selling costs with agents fees and legals is generally a lot lower too in the UK 🙄

I would bet money that the same priced property purchase in the right area of the UK will not only rise more in value, but give a bigger profit in a shorter term than the same priced property in Spain, in the UK you don’t need to make 16-20% just to break even, all things being equal in World events.

UK council tax is not too high compared to places like New York State, we pay £1500 a year in the UK, friends of ours pay $27,000 per year in Westchester County which stopped me moaning about UK Council Taxes 😛

[peterhun]

@Daryl wrote:

Which is exactly what I was talking about. That’s the only tax to worry about, because it involves the future, which none of us know anything about. Tax charged when buying is a one off, so it is nothing to worry about in the long term.

D

Don’t worry, they will tax you there is no doubt about it. Spain needs 5 % of its GDP in higher taxes and the only ready source of cash is foreign property owners. What you going to do about it, vote them out of power 🙂

Spain already demonstrates it has contempt for EU law and will ignore it. Currently they apply a tax on property based on imaginary valuations that you can’t appeal against, on the principle that all property is purchase with Black Money.

[DBMarcos99]

Must be that time of year – now Forbes has an article claiming the US is insolvent…

http://www.forbes.com/sites/afontevecchia/2013/05/08/u-s-is-insolvent-banks-sitting-on-trillions-in-derivatives-we-cant-see-and-qe-money-printing-is-making-it-worse-singer-at-ira-sohn/

Amateurs!

[Anonymous]

Angie, I don’t disagree with anything that you are saying. Budgeting to buy a property in Spain should take all of these things into account. My only point is that all of these issues are known. The only thing that is not known is the possible increase in annual property tax (the equivalent of Council tax), and as long as that isn’t likely to sky rocket, there is no reason for me not to buy in Spain. Sure, a property in the UK would be a better investment, but I’m not looking at it as an investment. It is a bolt hole for me to escape to 6 or 7 times a year.

D

[Chopera]

Council tax is not a property tax. You pay it regardles of whether you own or are renting the property you live in. I’ve got buy to let property in the UK and I don’t pay a penny of council tax, the tenants do.

Spain has a wealth tax which, if you own a lot of property, could be applied to you. That’s the nearest to a property tax Spain has at the moment. The UK doesn’t have any propoerty taxes (I don’t consider stamp duty a property tax either). Spain has high property transaction costs although these days the UK ain’t cheap if you take into account mortgage fees.

[Anonymous]

I have said it before and I’ll say it again. People have totally forgotten about the external debt problem that Ireland and for example the UK has huge amounts of.

[angie]

A bolt hole in Spain 6 or 7 times a year Daryl, if it’s cheap enough might make sense for you so go for it.

Even a low priced property plus it’s transaction taxes would buy lots of trips without worries and costs of ownership, I personally would not wish to keep returning to the same place, others find it ok, have a good look around first though 😉

[Anonymous]

@angie wrote:

A bolt hole in Spain 6 or 7 times a year Daryl, if it’s cheap enough might make sense for you so go for it.

Even a low priced property plus it’s transaction taxes would buy lots of trips without worries and costs of ownership, I personally would not wish to keep returning to the same place, others find it ok, have a good look around first though 😉

I will certainly have a good look around before I do anything. Part of the reason for returning to the same place is that I will be doing some work whilst I’m away, and familiarity does help with that for me.

D

[angie]

Having rented and looked around for some while Daryl, there will be so much choice, so when it comes to making offers, I would make cheeky offers on a number of properties, maybe more so to Brits wishing to return, don’t forget exchange rate is more in favour of Brits wishing to sell, so more likely to accept I would think 😉 Someone will bite your hand off 😛

[Anonymous]

@angie wrote:

Having rented and looked around for some while Daryl, there will be so much choice, so when it comes to making offers, I would make cheeky offers on a number of properties, maybe more so to Brits wishing to return, don’t forget exchange rate is more in favour of Brits wishing to sell, so more likely to accept I would think 😉 Someone will bite your hand off 😛

Noooooooooooooo…………… I need my hands for work (musician…!). I think you’re right about offers though. There seems so much property available that it is unlikely that I will only find one that I like, so I won’t be scared that I might lose it if the offer is not accepted.

D

[peterhun]

@DBMarcos99 wrote:

Must be that time of year – now Forbes has an article claiming the US is insolvent…

This lists the net assets as% of GDP. Out of date, but post 2008 crash

http://en.wikipedia.org/wiki/Net_international_investment_position

UK -13.1% of GDP
Spain -87.1% of GDP

[DBMarcos99]

An interesting report from Princeton. Of course the doomsters will point out that it relies on data being accurate, but still

Recent data show that the current-account deficits of Greece, Italy, Spain, and Portugal have improved at a rapid pace and are actually close to being balanced. This column reviews recent research that shows this adjustment has been remarkably fast. Compared to mid-2008, these four nations have switched expenditures at a rate that is much higher than the typical rate observed during large rebalancing episodes. A key requirement for a return to a post-crisis Eurozone is thus on its way to being met.

http://www.voxeu.org/article/rapid-current-account-rebalancing-southern-eurozone#.UY5qBxp0p54.twitter

[Anonymous]

@peterhun wrote:

This lists the net assets as% of GDP. Out of date, but post 2008 crash

http://en.wikipedia.org/wiki/Net_international_investment_position

UK -13.1% of GDP
Spain -87.1% of GDP

I don’t really understand what is meant by “asset” in this case. I know that a lot of the wealth of the UK is help in IP, but does that feature in this list?

D

[Anonymous]

I don’t have any exact figures but I bet transaction costs of buying in Spain is around the highest in the world. I have no gripe with it really since it rewards long time ownership but they shouldn’t have raised it like they did some years ago.

In Sweden it’s 2% for houses and 0% for apartments in stamp duty. Add to that the agent fees for around 3% only for seller. Doesn’t punish people that move for work as much. Our rental market is screwed up though in terms of mobility. It’s even worse than the USSR.

[peterhun]

@Daryl wrote:

@peterhun wrote:

This lists the net assets as% of GDP. Out of date, but post 2008 crash

http://en.wikipedia.org/wiki/Net_international_investment_position

UK -13.1% of GDP
Spain -87.1% of GDP

I don’t really understand what is meant by “asset” in this case. I know that a lot of the wealth of the UK is help in IP, but does that feature in this list?

D

No its money due to be repaid. If I get a mortgage I have debt, but the bank has an asset that will eventually be repaid.

The UK’s debts overseas are huge but equally overseas government and institutions have huge debts to the UK so it balances out.

[Anonymous]

Yes but what happens when those assets are not worth as much. Very big gamble in the end for the tax payers.

[Anonymous]

@peterhun wrote:

No its money due to be repaid. If I get a mortgage I have debt, but the bank has an asset that will eventually be repaid.

The UK’s debts overseas are huge but equally overseas government and institutions have huge debts to the UK so it balances out.

Oh, I see. Thanks for explaining.

D

[angie]

MG, I find the transaction costs mentioned in that table for Spain really odd at just over 12% for both buying and selling 😕

It’s generally known to buy in Spain it’s 10-11% on it’s own, I’ve not met anyone who has sold via an agent plus legals for 1-2% 🙄

I think most agents charge at least 5% to sell in Spain, a few may have cut their fees to 3% or so, I reckon total costs are nearer 16-17% 🙄

The UK figure of over 5% covers all property as an average, because that would be less than 3.5% on property under 250k to buy and sell, plus, the table incorrectly shows UK agents’ costs near the 3% mark, when this can be had for between 1-2%, average 1.5% 😉

[katy]

Some are 5% plus IVA

[Chopera]

@angie wrote:

MG, I find the transaction costs mentioned in that table for Spain really odd at just over 12% for both buying and selling 😕

It’s generally known to buy in Spain it’s 10-11% on it’s own, I’ve not met anyone who has sold via an agent plus legals for 1-2% 🙄

I think most agents charge at least 5% to sell in Spain, a few may have cut their fees to 3% or so, I reckon total costs are nearer 16-17% 🙄

The UK figure of over 5% covers all property as an average, because that would be less than 3.5% on property under 250k to buy and sell, plus, the table incorrectly shows UK agents’ costs near the 3% mark, when this can be had for between 1-2%, average 1.5% 😉

I’ve noticed that idealista’s mortgage calculator now assumes purchase costs to be 12%. Obviously if you are paying 10% VAT on a new build the overall purchase cost will be higher, but also I get the feeling that with second hand property 12% is the new 10%. It might be a combination of increased transaction taxes but also the VAT on notary fees, etc might have pushed those prices up as well (same applies to agent’s fees when selling of course)

[Anonymous]

Talked to a London-based hedge fund manager about this over dinner last night. It’s his job to follow this question closely and make investments accordingly. He says the UK is as bad or worse than Spain. Here the savage adjustment is taking place. The UK is still in denial. The UK debt position is worse than Spain.

[angie]

Yes, but did you both discuss the rather large differences in respective property markets (supply and demand) and unemployment figures, and other factors like the huge indebtedness of Corporate Spain to Banks etc? 🙄 : UK still a safer bet for property at present and I would guess for capital since it is not involved in the Euro mess 😉 Didn’t hedge fund managers have rather an input into the whole global financial mess? 😡

I wouldn’t trust Spanish bank deposits with more than a few euros despite Montoro’s denials that a Cypriot style levy won’t ever happen in Spain 🙄

[DBMarcos99]

@mark wrote:

Talked to a London-based hedge fund manager about this over dinner last night. It’s his job to follow this question closely and make investments accordingly. He says the UK is as bad or worse than Spain. Here the savage adjustment is taking place. The UK is still in denial. The UK debt position is worse than Spain.

Well you may be right – UK property is at the peak of the biggest property bubble in history, and apparently sales volumes are at a low. But Japan shows us that a government can stave off a correction for 20 years if necessary.
You have to remember also that London is a bit like New York – prices can stay high there and attract foreign buyers even if virtually nothing is selling north of the Watford gap. I’m still waiting on a property to sell from last year. 🙁
Having said that, the new government “Help to Buy” scheme, due to be implemented from the start of 2014, may give a boost.

[Anonymous]

Like they did in Japan? Top prices in certain areas today in Tokyo stand at around 1% of their price. In the Ginza district you had to pay 1, 5 million dollar per square meter.

[katy]

All hedge fund managers aren’t experts on world economies 😆

As for the UK…no foreigners buying in the area I live and houses sell at more than asking price within weeks 😀 Some have been talking down the UK housing market since around 2002 and the crash still hasn’t happened. I sold an apartment in Kingston in 2002 because I thought the market was at it’s peak. Satisfied with the profit but I would be hundreds of thousands better off if I had hung on to it!

[DBMarcos99]

@Ardun wrote:

Like they did in Japan? Top prices in certain areas today in Tokyo stand at around 1% of their price. In the Ginza district you had to pay 1, 5 million dollar per square meter.

I stand corrected – you are right Ardun, the prices did come down eventually

A stark warning for anyone wanting to buy at peak prices 😯

[katy]

All hedge fund managers aren’t experts on world economies 😆

As for the UK…no foreigners buying in the area I live and houses sell at more than asking price within weeks 😀 Some have been talking down the UK housing market since around 2002 and the crash still hasn’t happened. I sold an apartment in Kingston in 2002 because I thought the market was at it’s peak. Satisfied with the profit but I would be hundreds of thousands better off if I had hung on to it!

[angie]

‘A stark warning’ was also made by Spanish economic consulting firm Acuna only 3 months or so ago that Spanish property could still fall another 50%, although Goldmans recently said it needs to fall another 10% 🙄 Whilst Acuna’s forecast is severe he does say ‘the market is broken’ but take an average of the two for example, and still rather overpriced 😉

Reuters also posted an article on 24th April saying ‘Spanish companies turn to junk bonds as bank finance dries up, and junk bonds are more expensive than bank loans’, it’s a right old mess, or as the Mexican said, ‘chingada’ 😉

[DBMarcos99]

For those who can understand Spanish, this documentary by Comando Actualidad is very illuminating. It shows buyers arriving in Spain to buy property, from places like China, Algeria and Russia. For them it makes sense to invest in property when they perceive prices are low. Which is subjective of course.

http://www.rtve.es/television/20130506/vienen-invertir/657000.shtml#kmnts

[Anonymous]

I think it is very important that people deal with their assets in the UK in the correct way before becoming fiscally resident in Spain. This needs careful preparation because if you leave a house in the UK in particularl if you bought it many years ago this could be taxed for CGT if you sold later. Nothing unfair about this -second homes are charged similarly by HMRC.You can much reduce the liability if you sell the UK house and buy another one maybe a cheaper oneif you really need to and use the difference for your Spanish home There are advantages in being Spanish Tax resident -if you are over 65 and live in your property for 3 years you can sell it CGT free -if there is one.

[angie]

Ptr, to what point do you think there will be sharing of information on this? As I understand things, in the UK, your main home is exempt from CGT but 2nd homes etc are subject to the tax if sold, I think you get the choice of what is your main home.

In reality though, how will the tax authorities in both countries be able to check everyone, all transactions, and what about married or unmarried couples who buy properties in one name only, say one each?

I’m sure many Brits who live in Spain, still keep a bolt-hole in the UK or vice versa 🙄

[Anonymous]

I spent a long time repling to you angie but pressed post reply instaed of submit ! will try again tomorrow as busy something else now !

[angie]

It’s happened to me before Ptr, so annoying, look forward to your reply later 😉

[Anonymous]

I recently received Angie an email from Winchams the Spanish legal specialists that a new EU Directive was in preparation that extends the Savings Directive for exchange of information into new areas in 5 countries including UK and Spain. They commented that the Spanish Finance Minister has said it will help them enforce the new Property Declaration for Spanish residents with properties valued in excess of 50 K euros worldwide. If you have been legally in Spain 5 years you might be concerned about the potential CGT the Hacienda could charge you if there is substantial equity in your UK home if it were sold and they found out. If you and your husband or partner are living together in Spain and one solely the UK Title and the other solely on the Spanish escritura then the HMRC tax people separately but married couples can inherit from the other. In Spain a spouse is often protected by a legal device known as zufruct to inherit if arranged -I suspect the Hacienda treat couples separately as HMRC for general taxation. If the properties are in both names and you have been in Spain legally for at least 5years and the UK property has equity then you need to deal with this. If you pay your income taxes to the HMRC solely then maybe limit your time in Spain this year to 182 days 1/1 to 31/12 and keep evidence -flight tickets for example.While doing this don’t come back and forth make 185 consecutive days in UK as Hacienda can ignore short absences if fiscally resident. Then consider making a declaration for the current year as No Residente and paying the tax in Spain for current year next year. .You might have to pay back tax but its not much plus penalties.If you are paying your income tax to Hacienda then you have to disengage from them by applying to HMRC to pay UK tax next April. You may need to have been in UK 185 days 6.5.2013 -5.4.2014 . Once accepted make No Residente declaration to Hacienda. Once done you could sell UK property to realise the gain CGT free if not let -then if you want to buy a new property which will if you go back to living in Spain more than 182 days start to acquire a future CGT liability from the price you buy it bearing in mind thestamp duty and costs of doing this. This is academic elucidation and anyone reading it should rely upon professional legal advice.!

[Chopera]

@angie wrote:

Ptr, to what point do you think there will be sharing of information on this? As I understand things, in the UK, your main home is exempt from CGT but 2nd homes etc are subject to the tax if sold, I think you get the choice of what is your main home.

In reality though, how will the tax authorities in both countries be able to check everyone, all transactions, and what about married or unmarried couples who buy properties in one name only, say one each?

I’m sure many Brits who live in Spain, still keep a bolt-hole in the UK or vice versa 🙄

I suspect that if you say sell your UK home before coming to Spain but then spend a sufficient amount of time in Spain during the same year to become a Spanish tax resident, then the sale of the UK home will fall under Spanish tax rules. Now I’m no expert, but I believe the rules in Spain on selling your main home are along the lines of: you don’t pay CGT if you purchase another main residence within 6 months. However if you sell your main home and then buy a cheaper home in Spain you can get taxed on the difference because you are assumed to be taking a profit.

Maybe Mark can confirm this, but it is something that has been in the back of my mind for a long time. I know Spanish people who were nearly caught out by it – they sold their main Spanish residence and then went into rented accommodation for nearly a year while they looked for another home. Hacienda got onto their backs saying they should pay 10% tax on the profit of the sale of their home, but they managed to argue their way out of it (that was pre-crisis, they might not get so lucky if the same happened now). Anyway, my point is that if say someone in the UK sold their home in March, moved to Spain in April and lived in rented accommodation for another year while they looked for something to buy, the Spanish authorities can tax them on the profit made from the sale of their UK home.

If so (as I say I’m no expert) then it is highly recommended that people moving to Spain sell their main UK residence towards the end of the Spanish tax year to make sure the sale doesn’t subsequently fall under Spanish tax rules. However I have never seen this advice given out anywhere, which made me think there was some kind of agreement between the UK and Spain. Now I’m not so sure.

[marios]

This is quite Interesting as I could be in this position early 2015

[GarySFBCN]

I suspect that if you say sell your UK home before coming to Spain but then spend a sufficient amount of time in Spain during the same year to become a Spanish tax resident, then the sale of the UK home will fall under Spanish tax rules. Now I’m no expert, but I believe the rules in Spain on selling your main home are along the lines of: you don’t pay CGT if you purchase another main residence within 6 months. However if you sell your main home and then buy a cheaper home in Spain you can get taxed on the difference because you are assumed to be taking a profit.

I believe you are correct and because of something similar with my retirement accounts, I am delaying my ‘fiscal residency’ for 1 or 2 years. During that time, I will be making withdrawals from my taxable retirement accounts and paying a huge tax bill now, but ONLY in the US. Doing this converts the money to “savings” so only the interest will be taxable in the US and eventually Spain when I seek fiscal residency. And this will result in a huge savings.

My only fear is that the euro will drop so far, pushing the value my assets over whatever the threshold is for the Spanish ‘wealth tax.’

[Author]

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