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 Post subject: Moving/Retiring
PostPosted: Wed Oct 01, 2014 1:27 pm 
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Joined: Wed Oct 01, 2014 12:58 pm
Posts: 5
Hello,

My wife and I are considering retiring early and moving to Lanzarote in 5-6 years time (2020). We are both 50 years old (only), so we won't be picking up any pensions in the short term.

We could afford to buy an initial property on the island in 2015 for about $400K, which we would let out for the next 5-6 years, before we moved into it ourselves. At that point we would sell our property in the UK (approx. $700K) and buy a couple of 'holiday letting' properties to sustain us.

However, the things that concern us are:

1) How buoyant is the holiday letting market in PDC / PB?
2) What sort of rental income should we expect (assuming the most cost effective property portfolio, valued at about $600-$700K) at current values?
3) Would managing a holiday letting from the UK be a bit of a nightmare as non-residents?
4) How reliable are managing agents in Lanzarote and what sort of fees should we expect to pay?
5) What level of taxation would be levied on the rental income (assuming we collected rental fees in a Lanzarote bank account)?
6) Any other gotchas we haven't already thought about?

There seems to be a wealth of local knowledge on this forum, so any advice / guidance would be gratefully received.


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 Post subject: Re: Moving/Retiring
PostPosted: Thu Oct 02, 2014 12:55 pm 
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Joined: Mon Aug 20, 2012 11:02 am
Posts: 28
Some points...

3) and 4) I assume you are talking about letting your initial property when you are still in the UK. You can hand over the whole job to a letting agent or you can do the letting yourself, perhaps from your own website and/or placing adverts on sites such as Lanzarote Breaks or Owners Direct. The costs involved are the costs of the adverts and not related to actual lets. Your task would be no more onerous from the UK than anywhere else. (We do it.)

However, you would need a Property Management organisation, as opposed to a letting agent, to look after and clean the property etc. for your guests. They would charge on-going fees dependant on the size of the property for generally keeping an eye on things and week-in-week-out pool cleaning if you have one, as well as "occupation" charges to cover cleaning and laundry for the periods that are let. There would also be maintenance costs for when things went wrong. You should enquire with such property management companies to check their prices.

5) You would pay 2 types of Spanish "income" tax on the property no matter where the rental fees were paid to - even if you did the letting yourself and the money went into a UK bank account.

For the periods that are let you would pay 24.75% on the profit, which is income less some of your expenses in proportion to the weeks let. So, for example, if you let out the property for 26 weeks in the year you would be able to offset 50% of your electricity and water costs, but 100% of the occupation charges mentioned above.

For the periods that were not let you'd pay tax on a notional letting income (often called fictitious rent!) which is 24.75% of 1.1% of the Valor Catastral (the deemed value of the property) proportional to the weeks not let. So, in the above example you'd pay 50% of that formula.

In addition you have to charge IGIC (Canaries VAT) at 7% on your rental fees and pay that to the Government, less any IGIC you have paid proportional to the let periods.

You also need to pay income tax in the UK but the letting part of the Spanish tax can be offset against the UK tax (double taxation) and more of the expenses can also be offset in the UK. (UK doesn't allow the proportion of expenses that relate to your own use. Spain doesn't allow the proportion that is not let, be it your own use or empty.) The non-rental tax cannot be offset against UK tax because there is no UK equivalent.

6) You should be aware that, depending who you talk to, the private letting of certain properties for holiday purposes is illegal in the Canaries. If you talk to the tourist department of the Canaries Government that is the answer you will get. If you talk to certain lawyers you will get a different answer. (The law is a mess!) Virtually all the private villa lets in Lanzarote are deemed to be illegal by the Government. But no matter who you talk to, long terms lets (3 months or over) are allowed.


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 Post subject: Re: Moving/Retiring
PostPosted: Thu Oct 02, 2014 1:33 pm 
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Joined: Wed Oct 01, 2014 12:58 pm
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Wow, thanks InterestedParty, that's fantastic detail!

You are correct re: 3) & 4) although I must say it's all sounding rather more complicated than I thought it might be.


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 Post subject: Re: Moving/Retiring
PostPosted: Thu Oct 02, 2014 6:03 pm 
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Joined: Mon Aug 20, 2012 11:02 am
Posts: 28
If you bought your initial property and didn't let it out but just used it for your own holidays, you'd still have to pay the non-letting tax on the whole 52 weeks. That tax applies to non-residents and, I think, resident second home owners.


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 Post subject: Re: Moving/Retiring
PostPosted: Thu Oct 02, 2014 8:21 pm 
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Joined: Fri Aug 28, 2009 9:14 am
Posts: 230
The children and school side of things probably won't interest you in the following thread but the general points about ex-pats living on the island may be useful to consider:

advice-please-t8013.html

Good luck with whatever you do!


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 Post subject: Re: Moving/Retiring
PostPosted: Thu Oct 02, 2014 10:30 pm 
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Joined: Wed Oct 01, 2014 12:58 pm
Posts: 5
Thanks both!

The schools won't be an issue as the kids will be out of school by the time we move.

We're over at the end of October, so will have a look at the sort of properties we may be able to afford then, but I must admit it's sounding like a lot less hassle just to keep our letting property in the UK until we're ready to make the move.

The only thing that may skew it is the relative increase in property prices in London / Lanzarote in the next 5-6 years..... now, where's my crystal ball gone?


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 Post subject: Re: Moving/Retiring
PostPosted: Fri Oct 03, 2014 12:24 pm 
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Joined: Mon Mar 31, 2008 2:10 pm
Posts: 1024
No one can tell what the market is going to do......BUT I can pretty say with 100% certainty that the London property market will out perform the Lanzarote one. And by a considerable margin. Purely on supply and demand....

There is a huge over supply of holiday properties in Lanza and a shortage over here.

If I actually wanted to make money in the rental market I wouldn't use an agent and would do all the lettings myself - but would help being in the same country...otherwise your profit becomes tiny - you're looking at between 10 and 20% of your income to an agent.
You could do it via ownersdirect but you'd want a good cleaner/maintenance person to be on the ground.

The market is pretty stagnant still - many properties have been on the market for ages in Playa Blanca that I know of due to unrealistic valuations, expats can't afford to sell due to negative equity etc. The prices in the estate agent windows are "interesting"!!

I would just holiday over the next few years in different places to see where you like and then get a long term rental when you are ready to go over to test the water and then buy.


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 Post subject: Re: Moving/Retiring
PostPosted: Sat Oct 04, 2014 9:30 am 
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Joined: Wed Oct 01, 2014 12:58 pm
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Thanks foodie, that's probably good advice.

When you say the prices in some of the agents' windows are "interesting", what do you mean? Unrealistically high or low?


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 Post subject: Re: Moving/Retiring
PostPosted: Sun Oct 05, 2014 7:22 am 
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High.

Obviously the "real" value of property is what someone is prepared to pay but compared to the UK not as easy to find what equivalent properties are worth.


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 Post subject: Re: Moving/Retiring
PostPosted: Mon Oct 06, 2014 8:42 am 
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Joined: Tue Nov 25, 2008 11:59 pm
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Quote:
No one can tell what the market is going to do......BUT I can pretty say with 100% certainty that the London property market will out perform the Lanzarote one. And by a considerable margin.


I may quote that back to you in 18 months! lol


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 Post subject: Re: Moving/Retiring
PostPosted: Mon Oct 06, 2014 11:52 am 
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Joined: Mon Mar 31, 2008 2:10 pm
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Feel free!!

London is operating in a bubble due to foreign investors etc etc you can read the reasons from far more qualified people than me!


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