10 Top Considerations For Those Buying Property Abroad
by Rhiannon Williamson
Are you one of a
growing number of people considering buying a second home in the sun, an
idyllic home from home abroad or a lucrative investment property overseas? If
so you’re not alone! Statistics show that globally we’re all on the
move with a recent survey by YouGov revealing that 55% of adult Britons were
“seriously considering settling in another country” and the British
Centre for Future Studies predicting that by 2020 one tenth of the current
British population will be living or working abroad!
Add to this the
fact that there was a 250% increase between 2000 and 2004 in the number of
Britons buying property abroad solely for investment purposes, that over one
and a quarter million Brits own second homes in Spain and France already and
that the Office for National Statistics in the UK recently revealed that
200,000 Britons go overseas yearly with the intention of remaining for at least
twelve months, and you can see that the passion for buying that dream home
abroad is universal. 
But what’s
fuelling this ever growing interest in the overseas property market?
Well, despite reports to the contrary the UK housing market is seemingly ever
on the up and those Britons who’re acquiring massive levels of equity
through their residential property are considering selling up, buying abroad
and establishing a pension fund simply on the back of what they have left over
from their house sale. Others in Britain can’t actually afford to get on
the first rung of the property ladder and some are looking abroad to find more
affordable housing. Then of course there’s the state and confusion
surrounding the pensions market which is getting ever worse meaning that a
growing number of Britons are considering the option of buying a second
property abroad to let out for an income towards retirement. Others just share
a commonly held dream of owning a holiday home in the sun or escaping the rat
race to get a new life overseas.
Whatever reasons you may have for
considering buying property abroad one thing is for certain; before you go
ahead and buy you should understand some of the far reaching legal, financial
and taxation implications of buying abroad. This article examines ten top
points worthy of your consideration.
1) The British national obsession
with property prices, equity and re-mortgaging is as foreign a concept in many
other countries as mushy peas or vinegar on your chips so don’t just
assume that your second home will rise in value and don’t assume that
it’ll be easy to sell. Do your homework to see whether the property market
you’re interested in can support and sustain your particular hopes and
ambitions for it. In countries such as Northern Cyprus and Bulgaria the real
estate market has been suppressed for so long that property prices remain
highly competitive and many can see the room for substantial growth in the
market. In other countries such as Spain, France and Portugal where the
property market has been soaring for years can you expect the same levels of
growth to continue? Know that every country’s property market is
different. If you decide to compare overseas markets to the UK housing market
some may not appear as buoyant, however consider examining the longer term
trends. Speak to established estate agencies in your country of choice to find
out whether the market is stable or stale. If it’s stable then you’re
more likely to enjoy a steady, realistic increase in your property’s value
rather than the extreme peaks and troughs that the UK market tends towards. If
on the other hand the market is stale you need to consider the economy of the
country and whether it’s due a positive correction any time soon.
2) Factor in regular travel costs needed for visiting your second home when you
establish your budget. Keep in mind any extra visits you might have to make
occasionally to organise repairs and renovation for example. This sounds so
obvious but sadly many people are caught out and find that they cannot holiday
in their new home as often as they like: or worse still - once they move abroad
they find they can’t get ‘home’ for visits to the family etc.
Budget wisely and don’t get caught out!
3) If you intend to rent
out your second home you must declare this income to the tax man in your
country of residence I’m afraid! Furthermore it may be necessary to
declare it in the country in which the new house is located depending on the
double taxation agreements in place between the two countries. Make sure you
seek solid tax advice before making any concrete buying decisions.
4)
If you’re intending to let out your property make sure you know how much
it’s going to cost to have an agent manage both the day-to-day running of
your property together with organising the rental side of things for you.
You’ll need a good agent to make sure your best interests are always
protected especially if you’re not going to remain resident in the country
the property is located in. Factor these extra costs into your budget or reduce
them from your projected rental income to get a realistic idea of the income
potential of your property. Remember you’ll still need to pay a management
agent during any weeks and months the property remains unoccupied.
5)
Consider the local tax implications of buying, owning and selling your property
as property and land tax in some countries can make UK stamp duty and council
tax pale into insignificance. In Northern Cyprus for example tax rates are not
currently excessive but they are subject to change, therefore always get
up-to-date tax and fee facts and figures from your estate agent –
furthermore, make sure you check the figures with a local lawyer or
accountant.
6) Make a will to cover local inheritance tax laws and
make sure your overseas property is also detailed in a will held in your
country of residence. Specialist legal advice should always be sought when you
hold property in more than one country as inheritance laws not only differ
greatly depending on the country, but certain local inheritance laws can
completely contradict and invalidate your main will.
7) Factor the
legal bills that you will incur when buying, renting or selling your property
into your overall budget. You can be charged all sorts of extras like notary
fees, valuation fees, translation fees etc., and if you factor them in you
shouldn’t get any nasty surprises.
8) Be aware of the legalities
of any contract you enter into. Find a reputable lawyer, get key documents
translated, and know that ignorance is never a valid excuse! Not understanding
the language in which your key legal contracts are written is a problem,
don’t ignore the problem! Don’t blindly sign on the dotted line;
it’s your responsibility to get informed.
9) Buying through an
offshore company to avoid certain taxes, expenses and laws is sometimes an
option open to an individual interested in purchasing abroad. Whether this
route is actually the best route is massively debateable! Firstly it depends on
the country in which you’re buying. Secondly, local agents may be
incorrectly advising foreigners by basing their advice on the local situation.
This method of approach can be beneficial but it could land you in a whole lot
more taxation mess both abroad and at home! There are specialist companies out
there who can advise you based on your individual situation and as it’s
not a case of one method suiting all, be careful and get informed. Find out the
following, if you do buy through an offshore company and wish to take the
property out of that company in the future how easy will that be to do, will
you incur an expense, will there be further tax liabilities if you decide to
sell your company owned property, and what happens if you try to take the
profit from the sale, will you be taxed? Also consider the taxation situation
from the UK point of view and the local situation in your country of
choice.
10) What option would you like to take when it comes to
financing your purchase? Are you considering equity release or a second
mortgage, cash or a mortgage in the local currency? Know the pros and cons of
each option. Cash may seem like the easiest and best way to go but do you want
to have all that money tied up in a relatively slow to liquidise overseas
asset? So what about a mortgage in the local currency? You need to consider the
stability of the currency and fluctuating exchange rates. When moving money
overseas either in a lump sum or to meet regular monthly financial commitments
there are options available to you to reduce currency fluctuation risks –
consider spot or forward transactions, speak to a financial adviser or foreign
exchange risk expert to find out the options available. If you’re
considering equity release or a second mortgage this might be a cheap option at
the moment – but remember you’d risk losing one or both homes if you
fell behind on payments!
When it comes to the considerations you need
to make when exploring the idea of purchasing a second home abroad these ten
top tips are not exhaustive but should provide some food for thought. Going
forward from here you should remain informed; don’t enter into an idea
abroad that you wouldn’t entertain ‘back home’ and seek
professional legal, financial and taxation advice at every step of the way.
Rhiannon Williamson is the publisher of
http://www.shelteroffshore.com/ - the online resource that
guides you to a low tax, maximum investment profit lifestyle abroad.
Shelter Offshore features three main channels - offshore investment, property
investment abroad and overseas lifestyle.
Rhiannon Williamson is also the author of ‘The Offshore
Advantage’ www.shelteroffshore.com/index.php/shelter/offshore_advantage/
which teaches readers how to build secure wealth using their secret offshore
advantage.
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