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Britons who move abroad to live need to be able to show that they have made a “distinct break” with the UK if they wish to ensure that they cannot be treated as UK tax resident after leaving UK shores.  If you do not clearly sever ties with the UK, HM Revenue & Customs (HMRC) could argue that you are liable for tax in the UK, even though you live elsewhere.  The exception is if you leave the UK for full time employment abroad.

It has been suggested that employees leaving Britain will have to cut their ties with the UK like selling their home, and not set foot in the UK for at least a year to become non-UK resident, but this is not the case.

The recent judicial decision involving Robert Gaines-Cooper and UK residency reaffirmed that in order to become non-UK resident it is not necessary for an employee to do anything other than be employed overseas full time for at least a full UK tax year. 

Lord Justice Moses said: “It is not enough that the taxpayer has left the UK, he must have left to work full time.  Absence is not sufficient; it must be absence while engaged on a full-time employment for at least a whole tax year.  No more however is required.  The absence need be neither permanent nor indefinite.  Accordingly, … there is no requirement, for a taxpayer to demonstrate that he has severed family and social ties within the UK.”

The employment must be on a full time contract as an employee and not simply your own company set up to give you an employment. 

When Gaines-Cooper moved to the Seychelles in 1975 he did not take up full time employment there and had to rely on HM Revenue & Customs’ (HMRC) guidance in its booklet IR20 (now HMRC6) on residency and non-residency.  Under the heading “Leaving the UK permanently or indefinitely”, the booklet stated: “If you go abroad permanently, you will be treated as remaining resident and ordinarily resident if your visits to the UK average 91 days or more a year.”

Gaines-Cooper argued this meant that all he had to do was leave the UK and thereafter spend less than 91 days a year there.  The Court of Appeal referred to the words “permanently or indefinitely” in the heading:

“The adverbs “permanently or indefinitely” make, as a matter of construction, all the difference.  The extent to which a taxpayer retains social and family ties within the United Kingdom must have a significant and often dispositive impact on the question whether a taxpayer has left permanently or indefinitely.”

IR20 has since been replaced by HMRC 6 and HMRC is adamant that the information given is for guidance only. However, it is clear that if you are not an employee – eg, you are retired, even if below retirement age – and wish not to be treated as a UK tax resident after leaving the country you must demonstrate that you are leaving the UK “permanently or indefinitely”. 

 Ties to sever to establish UK non-residency

• Set up a new main home outside the UK. It is not strictly necessary to give up having a home in the UK altogether providing it is “consistent with” you moving abroad to live “permanently or indefinitely”.  So if you retain a UK home it would be prudent for your home abroad to be larger than the UK one.  However retention of a UK home available for your use is a factor that connects you to the UK, so to strengthen a claim to non-UK residence we would recommend you sell or rent it out to a third party.  

• Move personal effects, cars etc to your home abroad.

• Your spouse and any minor children should move abroad with you.  There is however no need to sever all family and social ties – it is not necessary for adult children or aged parents to move with you as has been suggested in the UK press.

• Resign membership of sporting and social clubs and cut all UK business connections.

• Notify your UK doctor and dentist that you have left the UK and register with different ones in your new country of residence.

• Dispose of UK investments and plan to re-invest abroad.       

• Close UK bank accounts and credit cards and open new ones in your new country.

Once you have made a ‘clear break’ with the UK, it is still possible to visit, providing you keep well within the 91 day limit – i.e. spend less than 91 days or nights there per UK tax year taken on average over four years.

If you have not made a ‘clear break’ with the UK, you may be treated as remaining UK resident, regardless of the number of days you spend in there each year.

A tax and wealth management firm like Blevins Franks can advise you on tax and residency issues in the UK and many other countries, including advice on how tax planning can reduce your tax liabilities, even if eventually you return to the UK to live.

 By David Franks, Chief Executive, Blevins Franks

www.blevinsfranks.com 

 

Many British expatriates arrive in Spain to live without fully understanding the local tax situation or any obligations that may remain to the UK taxman. There are quite a few myths around and unless you are properly informed you may get your tax planning wrong. This article looks at some of the common misconceptions and separates fact from fiction.

I am resident in Spain but complete a full tax return in the UK

►        You become resident for tax purposes in Spain if:

-       you spend more than 183 days in one calendar year in Spain (the days do not have to be consecutive), or

-       your “centre of economic interests” is in Spain, or 

-       your “centre of vital interests” is in Spain, or

-       your spouse is resident in Spain unless you can prove you are resident in another country.

►        As a resident of Spain you are liable for income and capital gains taxes on your worldwide income.

►        If you receive a gift or inheritance as a Spanish resident, you may be liable to Spanish succession tax.

►        You must complete a Spanish tax return in respect of your worldwide income.

►        A UK tax return only needs to be completed in respect of certain non-exempt income, such as rental income from UK property.

I am taxed at source on my UK assets and therefore I am not liable to tax in Spain on these assets

►        You are entitled to double tax relief if you have income subject to tax at source in the UK which is also taxed in Spain.

►        You can usually make arrangements for tax not to be deducted at source in the UK on certain types of income. This income would then be received gross and taxed solely in Spain.

I am taxed at source on my offshore bank accounts under the EU Savings Tax Directive and therefore am not liable to tax in Spain

►        Paying withholding tax on offshore interest payments does not mean that you have no further tax liabilities on the same income in Spain. 

►        You still must declare such earnings on your Spanish tax return. 

►        If you pay the withholding tax and declare the income in Spain you are unlikely to receive any tax credit in Spain and could pay tax twice.

I can withdraw 5% of my UK/offshore insurance bond per year for 20 years without any liability to Spanish tax

►        The 5% rule only applies to UK residents.

►        As a Spanish tax resident, your offshore insurance bond will be taxed according to the Spanish rules. 

There is no tax to pay if I have not taken withdrawals from my insurance bond

►        The taxation of insurance bonds in Spain depends on whether the bond is ‘qualifying’ (issued by an EU country and compliant with Spanish regulations) or ‘non-qualifying’.

►        Non-qualifying bonds are valued at 31^st December each year and any increase in value from 1^st January is taxed in full as income, even if there has been no withdrawal. The taxable income is taxed as savings income, so at 19% on the first €6,000 and 21% on any balance.  For example, if an investment bond increases in value by 10% from €200,000 to €220,000 in any one year, the tax payable in Spain is €4,080 (€6,000 x19% = €1,140, + €14,000 × 21% = €2,940).

►        Any fund located in a ‘tax haven’ (eg Isle of Man, Jersey, Guernsey) is non-qualifying and will receive this unfavourable tax treatment.

A withdrawal from a qualifying offshore bond will be taxed at 19% on the first €6,000 and 21% on any balance

►        There is no tax to pay until a withdrawal is made from qualifying bonds in Spain.

►        The taxation is very favourable because only the growth in value element is taxed, not the whole withdrawal. Using the above example, if you withdraw €20,000 you will only need to pay tax on roughly 10% of it.  The taxable income is therefore €2,000 and your tax liability (at 19%) is only €380.

UK investment bonds are tax free in the UK for Spanish residents

►        A UK investment bond is taxed at source in the UK.

►        The tax deducted can be set against your tax liability in Spain, so you do not pay tax twice on the same income.

►        If you have either a non-qualifying insurance bond or a UK investment bond it will be advantageous to transfer it to a qualifying, non-UK, bond.

I am a UK national and not liable to Spanish succession tax (SST)

►        SST is payable if the inheritor or recipient of a gift is resident in Spain, or the asset being gifted or passed on death is situated in Spain.

►        The tax rate can be as high as 34% for inheritances or gifts within the immediate family or higher for more distantly related recipients.

►        Depending on which region you live in, there are usually deductions available according to the closeness in relationship between the recipient and the deceased, and other exemptions may be available.  

►        SST can often be avoided through use of an offshore trust.

Contact an experienced international tax and wealth management adviser like Blevins Franks for advice on tax mitigation strategies in Spain. 

Note that the tax treatment(s) detailed above are current at the time of writing and may change in the future.

By Bill Blevins, Managing Director, Blevins Franks

 www.blevinsfranks.com

Wider UK trade deficit and falling factory gate prices dampen appetite for the pound. Stability returns to the euro as the Greek panic subsides.

Sterling spent a second week paying the bill for its post-budget honeymoon. It has now returned all the way to its position before the chancellor stood up to deliver his speech on 22 June. There was nothing dramatic about the decline and no sense of the panic that would have been typical six months or more ago. To some extent the fall was a completion of the technical head-and-shoulders formation that peaked a fortnight ago.

The UK economic data were mixed. Monday’s services sector purchasing managers’ index (PMI) fell by one point to a less-than expected 54.4. It suggested that companies were still growing their activity but at a progressively slower pace.  Wednesday’s production figures were good in parts. Although manufacturing production grew by only 0.3% in May instead of the +0.5% analysts had predicted, it was a far better result than April’s -0.8% decline. The broader industrial production figure, which includes such things as mining and energy, reversed the previous month’s decline with a +0.7% rise. The Halifax house price index went down for a second month, this time by -0.6%, leaving house prices 6.3% higher than a year earlier. 

The most disappointing data, at least as far as sterling was concerned, came on Friday with June’s producer price index (PPI) and the balance of trade for May. The input and output components of the PPI, representing manufacturers’ costs and factory gate prices, were lower in June by -0.2% and -0.3% respectively. The numbers supported the Bank of England’s projection that inflation will fall back towards its 2% target without the need for higher interest rates. The UK trade figures were also unhelpful. The deficit in goods widened to more than £8 billion while goods and services together registered a £4.5 billion shortfall. Both deficits were bigger than expected and cast renewed doubt on the alleged benefits of a weak pound.

Other events during the week saw an announcement from the new Office for Budgetary Responsibility (OBR) that its boss, Alan Budd, did not intend to renew his initial three month contract and that the two other members of the triumvirate would also be leaving before the end of the year. Critics of the new setup wondered why he was leaving.  Could it be because of lack of independence? Perhaps not, for the International Monetary Fund (IMF) came out later in the week with economic growth projections remarkably similar to those put together by the OBR. The IMF agrees with the OBR that Britain’s gross domestic product will grow by 1.2%.  Its forecast of 2.1% growth in 2011 is lower than the OBR’s 2.3% prediction.

After months of punishment as a result of the problems in Greece the euro has made a good fist of regaining some semblance of stability. There has been a correction to what commentators retrospectively describe as an ‘oversold’ condition, in much the same way that sterling recovered from its near-parity lows a year and a half ago.

The euro zone’s services PMI came in better than its British or US equivalents at 55.5, minutely higher than the previous month. Retail sales also performed better than forecast in June, rising by +0.3% instead of falling by that amount as analysts had predicted. Finalised figures for economic expansion in the first quarter of the year showed a +0.2% growth in gross domestic product (GDP), probably a tad short of the +0.3% growth that is expected to have demonstrated. Germany performed better than Britain on the industrial production front, with growth of +2.6% in May, while it demonstrated slower inflation at +0.8% in the year to June. If the Bank of England is under no pressure to raise interest rates in the War on Inflation, the European Central Bank (ECB) seems to be under no greater pressure.

Indeed, the ECB sided with the Bank of England in leaving its policy interest rate unchanged at Thursday’s meeting. President Jean-Claude Trichet expressed guarded optimism at the pace of economic growth but found no difficulty in containing his enthusiasm. Of more interest to investors was that he did not say about the ’stress tests’ that Euroland banks have recently undergone. The purpose of the tests is to examine how those banks would survive another serious economic or financial shock.  Investors are uneasy that the ’stresses’ to which the banks’ balance sheets are subjected might not in fact be real life worst-case situations. The results of the tests will come out in a couple of weeks’ time and are eagerly awaited.

That sterling spent the whole week on the slide does not bode well for it in the immediate future. With UK statistics for Gross domestic product, inflation, consumer confidence, employment and earnings all due this week there is scope for further setbacks if the numbers are not supportive.

Buyers of the euro should hedge half their requirement until sterling’s future course becomes clearer.

Credit:- Moneycorp  13 July 2010

British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle.  Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this.  The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Schemes) which can reduce taxation in Spain –as well as UK inheritance tax (IHT).

Spanish tax savings which can be made with a QNUPS are:

•  QNUPS can avoid succession tax in Spain as well as succession law. 
• There is no Spanish tax on the transfer into a QNUPS.
• Funds within the scheme will grow free of Spanish income tax.
• If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), very favourable Spanish tax provisions may apply.
• There is no need to buy an annuity from an insurance company.
• You can withdraw up to 25% as a lump sum from a QNUPS.  If a lump sum is taken Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made.  The tax rate is 19% (on the first €6,000 of total savings income, including that from other sources) and 21% on the excess.
• The balance of your investment can pass onto your heirs on your death. 
• A QNUPS can avoid wealth tax if a rate is reintroduced in the future.

No UK IHT with a QNUPS

If you are a British expatriate, you may be liable to UK IHT on your worldwide assets, even if you are Spanish tax resident.  This is because liability to IHT is based on domicile and not residency. 

Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum.  For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK.  You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help.  Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.

Many Britons who relocate to Spain do so without a thought of moving back to the UK.  But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of £325,000 per person or £650,000 for spouses and civil partners.

Investing in a QNUPS takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK.  Assets in a QNUPS are immediately exempt for IHT – even if you are UK domiciled.

Other advantages of a QNUPS

•  Investable wealth can be placed in a QNUPS.  You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
• There is no maximum age at which you can invest in a QNUPS.
• There is no maximum contribution.
• You do not need to have any earned income from an employment.
• Income and a lump sum can be taken from age 55, or can be deferred until the age of 75 (although if you take income earlier, the lump sum needs to be taken then).
• Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
• Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.

A QNUPS provides an opportunity for flexible investing and choice.  It doesn’t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits, especially for Spanish succession tax and UK IHT.  Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.

Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK.  Contact an adviser such as Blevins Franks to learn how QNUPS can help you.

Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.

By David Franks, Chief Executive, Blevins Franks

www.blevinsfranks.com

The Banco de España (bde) has asked a large number of banks to undertake an impact test for their residential properties and other real estate assets in order to draw up a new strategy, based on provisions whose purpose is to ensure banks and savings banks sell their residential real estate as soon as possible.

The regulator is in favour of banks offloading their residential properties as soon as possible, and is considering increasing the pressure by raising the minimum amount banks and savings banks must hold in provisions for property assets. In contrast, it could ease the rest of the provisions, such as default ones.

For some time now the idea that the Banco de España may raise the minimum required provision to 30% of a property’s value, if it has been held by the bank for over two years, has been circulating in the market. This is something that some banks already do, but the Banco de España has sent the test s in order to decide whether or not to make the provision obligatory. The bank is also considering raising the provisions for longer-term and/or problematic assets to over 30%. At the present time banks must set aside 10% of a property’s value during the first year it is on the bank’s books and 20% in the second year.

The final objective of all the measures is to penalise the banks which have real estate on their books to encourage them to sell the properties, as this is one of the issues that generates the most distrust and lack of confidence in the banks´ soundness. According to bank data, the financial sector has 165,000 million euros in problematic real estate assets, of which around 60,000 million are for repossessed real estate or land.

Credit: Fuster & Associates

www.spainsolicitors.com

Note: If this is the case, then will we see the banks doing more to avoid repossession of properties or will the banks start accepting much lower offers on properties, in order to reduce their substantial portfolios? Either will do, the former, if you are a home owner under pressure or the latter for an investor. However, even with the multitude of properties available, why is it that first time buyers still cannot get a foot on the ladder?  Perhaps the government in co-operation with the banks should be looking at that sector to move the property market along.

The government has announced a 5% reduction in notary and registry fees on property deeds as part of a package of measures to reduce the deficit and stimulate the economy.

Notaries and Registrars are screaming blue murder at this attack on their earnings; whilst house buyers will hardly notice the difference the savings are so small.

How big a saving will that 5% reduction in notary and registry fees give the average home buyer in Spain?  It will be between €35 for a property costing €150,000 and €45 for a home costing €300,000, according to calculations done by Idealista.es, a Spanish property portal. Almost insignificant then.

Notaries and registrars are furious. The latter’s’ fees are already down by 50% thanks to the slump in property transactions.

Credit: Mark Stucklin

www.spanishpropertyinsight.com

Note: From a buyers point of view they are unsympathetic but in order to assist in the clearance of the back log of property, the consensus is why increase property tax from 7% to 8% on 1^st July, when in fact it would be better to scrap it and look elsewhere for savings!

What does the immediate future hold for the Spanish property market?  Stagnation or another lurch downwards, according to one industry leader.

“The property market is under observation. Either we have touched bottom, or we are going to fall again.” That was Juan Fernández-Aceytuno, Managing Director of Sociedad de Tasación, one of Spain’s leading appraisal companies, speaking at the launch of stvalora.com, a new online valuation service.

Almost 4 years since property prices peaked, the market is still stuck in what some call a correction. “We are at an impasse, with everyone waiting to see what happens to the market. Few people will dare to say if we have touched bottom or just a bottle neck before falling again,” said Fernández-Aceytuno.

 No rebound in property prices.

A rebound in prices is the one thing that Fernández-Aceytuno confidently rules out, despite the forthcoming increase in VAT that will put up the price of new homes. If anything he is more worried about a potential increase in interest rates forcing house prices down further.

Fernández-Aceytuno also points out that house prices tend to rise in good times and fall in the bad.

“Nobody has a crystal ball when it comes to prices, but at times when disposable incomes and credit have risen, prices have risen, and conversely, when these have fallen, so have prices.” In Spain today incomes are falling, there are more than 4 million unemployed, credit is scarce, and there is no sign of the situation improving anytime soon.

The Spanish property market recovery, when it comes, will be lead by a change of attitude in the sector, argues the boss of Sociedad de Tasación. “What the sector really needs is to regain trust and credibility,” he said, whilst admitting that some companies inflated valuations for mortgages by 15-20% during the boom. With prices down around 20%, that leaves some borrowers sitting on losses of 40%. “That’s what I would call suffering a bubble.”

 Credit:- Posted on May 21, 2010 by Mark Stucklin

www.spanishpropertyinsight

From the 1^st July, 2 of the 3 categories of Spanish VAT will rise.

 16% to 18%

   7% to   8%

   4% (is to remain the same).

What does this mean for the Spanish Property market which is already struggling to survive the current climate?

It will certainly increase  the cost of buying and selling property and obtaining a mortgage in an already crippled market.

What is the government thinking?

Of course it will generate income for them but may push the market further backwards and no doubt they are hoping that prices will fall still further and generate increased interest from buyers and steady the industry but at what cost? More likely it will force more builders, promoters and agencies out of business with knock on job losses. The banks will come under further pressure and there will be many owners caught in the trap of having mortgages far greater than the value of their property causing an increase in repossessions as people struggle with their own economic crisis, losing jobs and putting more people on the bread-line.

Then there is the knock on effect for furniture and electrical companies and many other suppliers with steady drops in sales already recorded.

Buyers and Investors

No doubt there are people watching the situation with interest and for the general buyer now is the time to buy a property before the IVA increases and with so many properties available at low prices.

For the investor, they will probably sit it out and wait for rock bottom distressed sales and then pounce as the drop in price will by far outweigh the increase in purchase costs.

With the pound rising against the euro, buying a property is looking even more attractive.

Mortgages

As the banks continue to come under pressure they will negotiate on distressed properties in order to clear their overflowing books and are currently making mortgage offers which pre crisis would be unheard of.

If you have the money now is the time to buy Spanish Property.

Admin: 5 May 2010

The Spanish property market has fallen victim to the current recession and taken with it many of the big building names in Spain who have gone into administration. Thousands of agencies have closed but hopefully illegal sellers who took advantage of the boom years will have disappeared also, they are no loss to an industry which is still reeling from bad publicity caused by illegal builds, land grab and corruption. That said, many of these matters are being dealt with and Spain has been addressing these problems for some time, with new legislation covering the building industry and the EU is taking an active part by investigating the plight of buyers caught in financial and legal nightmares over homes they bought in good faith.  

During the boom years, thousands of homes were built and sold as people rushed to own a second holiday home but gave little thought to what and where they were buying, how much they were spending and how it would all be paid for in the future and many were blinded by the glossy pictures and over emphasised spiel of the big agencies that herded them into large urbanisations. Now we see hundreds of ex-pats returning home as the crisis has crushed their dreams, interest rates eroded their savings, losing jobs they thought they had for life and crippled by large mortgages and without the means to pay them, many have had their homes repossessed.

However, for many their life in Spain continues, they are happy and take an active part in the community and town activities in which they live and would never dream of returning to the UK or country of birth.

There are of course properties which have been slashed in price to sell them but what you must ask yourself is, why? It could be that the owner is so desperate that they will take anything to return home but it may be because they bought in the wrong location to begin with? If that is the case, you may buy the property very cheaply and be happy with that but what if you want to sell it again yourself? Will you be able to or will you be in the same plight as the current seller?

Many people still want to buy property in Spain and now is the time to buy before the VAT increases in July and there are many bargains to be found and in the right place to buy.

No, they will not be detached villas with sea views for 50,000 euros, they are piped dreams but there are properties now being sold at thousands of euros below market value, in nice areas near the sea and are good long term investments for when the market recovers. The Spanish are searching along the coast for such bargains as they are well aware that the market will recover and prices will increase, so are jumping on the bandwagon now.

 Some advice:-

• Don’t be deceived by glossy brochures and the hype of property fairs.
• Research areas as much as you can on the internet or your local library.
• Do come to Spain and look for yourselves without the pressure of inspection trips.
• Never exceed your budget.
• Always use a solicitor.
• Choose an accredited agent, who will assist you throughout and after the purchase. We recommend WiseBuySpain.com

Editor 13 April 2010

Homebuyers still prey to uncertainty: Should I buy now, wait… or what should I do?
It now appears that home prices have not fallen as much as everyone thought, or at least according to the most important statistics. And that is not all, as the Government also believes that the sector will stabilise in the “near” future. How soon this will happen is not clear, although it will probably not be before the VAT increase, which will increase home prices by an average of 2,000 euros, and may take place before 2011, when the deduction for habitual residence purchases is to be abolished, a measure which will bring about a hidden increase of 8% in average home prices, according to calculations by economists.

Therefore, and bearing in mind that buying a home is the biggest investment that most people make in their lives, is it worth buying now, while you can still take advantage of the deduction and without being penalised by higher VAT? Or is it better to wait until 2011, when the era of low-priced homes may have finished? Should I sell? Should I lease with an option to buy? There are too many questions, and the answer to all of them is discouraging: “It depends”. The experts consulted by EXPANSIÓN did not have any general solutions, although they did have an answer for each question

Is it a good time to buy a home?

If the price of a property has dropped considerably, don’t take too long over your decision, because house prices have probably hit the bottom.

Bear the following in mind: “Prices can fall between 20% to 25% on average in the housing cycle”, and: “It is a good time to shop around carefully, because there is a wide range of homes for sale, and you will find some properties at a good price.” However, a word of caution if you want to buy a property on the coast – it would be better to wait as “prices are going to fall further”.

Is it worth buying a home before the tax hike in July?
This year is a good time to buy your first home: “If depreciation rates  were between 4% to 5%, the VAT increase and the elimination of the mortgage tax deduction would cancel out the lower prices. But in fact I do not believe that house prices have fallen 4%”. They must have fallen “by least 10% to 15% (depending on the area) in 2009, and in 2010 they will probably drop by around -10% to 20%, which means that this year will be a good time to buy a home, and a terrible year for selling”.

Does it make more financial sense to wait?
“The longer you wait the further house prices will fall, although it will be harder to find great home buying opportunities. If you buy now it means that you will not be affected by the VAT rise from 7% to 8% in July. In addition, you will be entitled to a deduction of up 15% on the first 9,015 euros spent on mortgage repayments each year in your personal income tax return, even though you earn over 24,000 euros a year. However, this must be balanced against the fact that next year promises to be a very good one for homebuyers.
What is going to happen in 2011?
The tax rise and the government’s promise to abolish the mortgage tax deduction “are going to encourage homebuyers to buy this year, even though the market has not yet bottomed out”.

What about if I want to buy a property in order to lease it for rental income?
This is another good option. Buying a rental property is a good investment at the moment, as due to the crisis there is a very wide range of opportunities to choose from. Now is a good time for medium and long term investments, even though “prices are bound to fall even further next year” according to real estate analysts. “Anyone who buys now will see a good return on their investment in ten years´ time” advises Izquierdo.

Should I sell?
The experts recommend that “sometimes it is better to make a loss than wait for the situation to get better”. If you set a realistic sale price, the property will sell. However, you should remember that t the property’s current worth will almost never be as high as during the property boom. THREE TIPS
1. “The whole of 2010 is a terrible year for selling, and a good one for buying. The best time to buy is probably before the summer”, as that is when VAT goes up.
2. “Now is the time to look for low-priced homes. The longer you wait, the more prices will fall, but it will be harder to find great home buying opportunities”.
3. Look for properties selling at very reduced prices, because it is unlikely that they will fall any further. “It would appear that the homes for sale at reduced prices are the homes that are selling”.

Credit:- www.spainsolicitors.com