I had a recent enquiry from British clients who wanted to make a property investment of about £275,000 (€313,000) in either Gibraltar or Spain. When deciding where, one must consider whether the property is purely for investment purposes, or as a new holiday home.
Marbella, with a present population of 140,000 inhabitants, has a vast amount of land, its area covering some 114 km2 and a coastline covering 44 km. There is a great choice of residential properties to match different types of investment.
The amount of €300,000 would buy you a very attractive 2- or 3-bedroom flat within walking distance to the sandy beaches of the area. It would be a prime property, but not the very best than can achieve prices two or three times higher and more. So for the product we have in mind, expect to pay €4000 per square metre. This is for a property which is either brand new or in very good condition and ready to decorate and move in. Let us analyse the costs involved in the purchase and its expenses, as well as present and future tax implications and the expected rate of return:
Buying Expenses (approximate)
10% transmission tax ITP or VAT at a similar rate if it is purchased from a development. Notary fees about €1000. Registry fees about €600. Lawyers’ fees 1% to 1.5%
So in total you will get little change out of 15% of the purchase price to be accounted as buying expenses and charges. If a company is established add a further €1000 if done – as it should be – via your lawyer. If rented on a yearly basis it will yield between €14,000 and €18,000 which means about 5% or 6%.
The normal yearly expenses can vary from property to property but certainly no less than €1100 as far as rates and rubbish collection tax are concerned plus Community charges (Service charges) which can be some 3000€ yearly.
Another option is to rent it out short-term only in which case you can make considerably more but again there will be management involved and work to account for which can be sorted by yourself, or if you are abroad, by an agent. You could double or treble your income and still be able to enjoy the property yourself when available.
Whichever way you work it out you will be liable to income tax in Spain if you generate rental income as you would in any other jurisdiction (minus your running expenses). Account for some 15% to 19% of your net profit. If done via a company it will cost some 25% of your net profit so probably not so attractive from a tax point of view.
What happens when I decide to sell on?
You will be liable to capital gains tax. Your selling price minus any works carried out on the property and properly documented, any expenses incurred in the sale like agency fees or advertising, and obviously deducting your initial purchase figure. There used to be some form of indexing but it seems no longer the case. Count on 19% of your net profit. That is the tax rate today.
In addition you will also be liable to a smaller but still considerable tax from your town hall – Plusvalia Municipal. This depends entirely on the time frame elapsed between your purchase price and the date of the sale, but could be anything between €1000 and €3000.
Apart from good income, why invest in Marbella?
It is a lovely place to live year round with 300+ days of sunshine and fabulous restaurants to cater for every taste you can think of, 50+ golf courses located less than 30 minutes away, one of the largest International airports in Spain (Malaga) with daily flights to every European destination you may wish to visit, a fast train 40 minutes away which can get you to Madrid in less than 3 hours… So it is a most desirable place to be in.
On the other hand, Gibraltar has mild Mediterranean weather. A little windy sometimes, but this is often a blessing during hot summer months. It is an active business and financial centre type of city. It has an excellent port and an airport with daily flights to different UK destinations. £275,000 pounds can buy you a very nice 2-bedroom flat with sea views within walking distance to the city centre. Think £4000 or more per square metre for a brand new or completely restored and ready-to-move-in property.
What about expenses when purchasing property in Gibraltar?
In Gibraltar the sole expenses to account for when buying a property would be lawyers’ conveyancing fees, which are normally about 0.5% of the purchase price. In addition you must pay stamp duty when applicable. In some cases there will not be any stamp duty, but if the property price is £275,000 there is a 2% stamp duty tax on the first £250,000 and 5.5% on the remaining balance. These tax rates can change as in any other jurisdiction.
Apart from stamp duty you must pay some £125 to get the property registered. There is no notary involved, and little more, so you will make very considerable savings when you buy comparing to Spain or other jurisdictions in Europe.
What about running expenses?
Much like in other jurisdictions you will have to account for service charges, which should be no more than £1000 per year, and rates which should not exceed £500.
If I decide to rent out what taxes will I have to pay?
A company will be liable for a 10% tax – amongst the lowest in Europe. If you pay as an individual, account for about 15% or a little more. It works according to your income, minus running expenses, rates and service charges.
And what would my approximate rate of return be?
About 6% or higher. 8% in some cases.
And what is my tax position the day I sell on?
In Gibraltar there is no capital gains tax generated from a property sale provided you are doing this as a personal or family investment and not as a main business. There is absolutely no town hall tax to account for. There is no transmission tax either. And no currency exposure for British buyers which is a very important factor.
So with all these pros and cons considered, why would you buy in Gibraltar apart from the obvious tax and other saving expenses involved? It is a charming place with an interesting community, with a great mix of races and religions who get on very well. It has all the services you may require. You can walk anywhere and it is very safe in general. And you can just cross the border if you wish a little more. So it is really the best of both worlds.
So where do I buy then?
Difficult to say… why not buy in both places?!