The financial reality of (my) life in Spain
Glancing through an article on The Guardian about the woes of the UK housing market, I came across this stirring advice from a commentator:
“Move to Spain: 1000 square feet of prime residence right in the centre of the capital (think Regent Street) for half a mil (Euros). And the cost of living half as much. Marigold Hotel stuff. Schengen. Great Health Service. Public Transport a third the price and twice as good. Sunshine. Food you can taste. Wine you can afford. Seaside. Mountains. Skiing you don’t need a mortgage for.”
Sounds splendid. Except that in my four and a half years of living in Barcelona, puttering about in a self-imposed state of financial witlessness, I’ve been hell bent on tamping a particularly disconcerting doubt to the bottom of my mental to-deal-with list, and the qualm is this – am I paying long-term to live in Spain?
My CPI basket – booze and beastie-spray
As someone who eschewed a good, professional job in Scotland’s financial sector in favour of going solo in crisis-bitten Barcelona, I can’t claim to be motivated by money. And on the face of it, the cost of living in Spain does seem reassuringly low: a decent cup of coffee here costs less than half the price of its Edinburgh counterpart, as does a 1-litre bottle of branded vodka, while public transport in Barcelona totes up to around two thirds of the cost back home. (Not counting the emotional cost of daily commuter hell courtesy of Scotrail.)
There’s no doubt as well that the natural attributes of the place – sunshine and the bounty of nearby sea and mountains – mean that your lifestyle obligingly ratchets your expenses down a notch.
I no longer go shopping for leisure, for example, spending more time in nature and less money than I used to in the shops, bars and restaurants of a sopping Scottish city. Here, a 3-course lunch at a neighbourhood eatery will set you back a mere 10 or 11 euros, and often means you don’t need an evening meal. Tenants don’t pay council tax, representing a significant saving over the course of a year, there’s no TV licence fee, and the mild climate means you’re not forking out a fortune on heating bills (though what I save on central heating I may well compensate for on mosquito repellents).
But, away from the comfortingly lower costs of run-of-the-mill essential items, I can’t get rid of the nagging worry that the longer I stay in Spain, the worse my economic outlook becomes. Living in a foreign country for almost five years gives you plenty of time to get acquainted with the lesser-known foibles of domestic fiscal policy, financial conventions and economic eccentricities – and several of Spain’s are bank balance ball-breakers.
Hidden costs of life in Spain?
Did you know, for instance, about the Spanish Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones)? (If not, go and inhale some calming chamomile and come back.)
Fair enough, it’s not every day you come in for a windfall, but this tax can stymie even the most innocuous of family finances. Imagine your aunt wants to give you 300 quid for Christmas, or your granny wants to give you a portion of her life savings while she’s still alive to see you make use of it. In the UK, you as the beneficiary would pay no tax, and if the donor lived for seven years after transferring the money, it would ultimately be exempt from their estate’s inheritance tax liabilities.
Not so in Spain, however, where the Impuesto sobre Sucesiones y Donaciones says that any money you receive, from family or otherwise, is considered a gift – and you must pay tax on it. It’s commonplace nowadays in the UK for parents to gift money to their offspring while still alive, in what Brits would call an ‘inheritance’ but Spain classes a gift. We’re not talking céntimos here, either, with the basic tax rate at 7% for transfers of up to €200,000 in Catalonia.
Another kicker is Spanish property tax. As a collective, this comes in at around 10% of the total purchase price, as compared to Scottish stamp duty that’s free for the first £145,000 then charged at 2%. Not to mention the horror stories I hear from buyers in Barcelona, locals and foreigners alike, who relate tales of cash in hand being demanded ‘en negro’ (under the table) to reduce vendors’ capital gains tax liabilities.
Depending on your circumstances, quotidian costs can mount up too. Trivial things, like going to withdraw cash from an ATM. This is typically free in the UK, and can be in Spain, but only if you find a network compatible with your own particular bank. Factor in the fees you’ll suddenly need to set aside each year for a ‘gestor’ (financial advisor), essential for navigating the myriad complexity of the Spanish legal labyrinth. Apart from the bonus of not paying to heat the house all year, utility bills I find are much of a muchness, with home internet substantially more expensive than in the UK. Considering the quality, clothes and shoes I think are extortionate here, and I tend to wait till I’m back in the UK to stock up.
Then, as a Coeliac sufferer, there’s the eye-watering cost of gluten-free food. Prescriptions in Scotland are free, and people with Coeliac Disease are entitled to gluten-free basics like bread and pasta on prescription from their GP. In Spain, prescriptions are neither free nor include gluten-free options, with a kilo of gluten-free flour costing more than eight times the price of wheat flour.
Swings, roundabouts and scary staircases
Of course, where I should be paying particular attention is in the long-term effects of the gulf between Spanish and Scottish salaries. It’s no exaggeration to say that I work longer hours in Spain than I ever did in Scotland, for a lot less financial reward. Over five, 10, 20 years, this is not going to be negligible.
To make matters worse, most companies in Spain don’t offer their employees a corporate pension scheme (at all). Spaniards are inured to this, as far as I can tell, citing historically generous Spanish state pension provision, while simultaneously caveating their confidence with a resigned “claro, by the time we come to retire, the state pension won’t exist”.
If I’m honest, I suspect that if I had the heart to sit down and do the sums properly, financially over the long haul I would have been better off living in the UK. At the same time, I’m well aware that there’s a lot more to life than cash. Being able to speak Spanish every day, being surrounded by colleagues from the four corners of the planet and being thrown into situations that challenge me as a person are all experiences I would not have had if I’d stayed tucked up safely at home.
Have you moved abroad and ended up suffering or benefitting financially? I’d be interested to hear how you’ve adapted either way.