Buying Abroad – The Tax, Financial and Legal Considerations

With the UK housing market seemingly ever on the up and the state and confusion surrounding the pensions market getting worse, a growing number of Britons are considering the option of buying a second property abroad.

This is a way to achieve a commonly held dream of owning a holiday home in the sun combined with the practicality of buying to let for an income towards retirement.

But have these people considered the far reaching legal, financial and taxation implications of buying a second home abroad?

Here are just a few points your Tax Consultants Guide team feel are worth consideration…

• 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! Don’t assume that your second home will rise in value don’t assume that it will be easy to sell. Check out the property market in your country of choice with these points in mind.

• Can you realistically afford the regular travel costs to visit your second home on a long term basis? Keep in mind extra visits for emergencies along the lines of burst pipes, a break in, or to organise repairs and renovation.

• If you intend to rent out your second home for parts of the year or even let it on a long term basis you must declare this income to the British tax man.

• How much is it going to cost you to have an agent manage both the day to day running of your property together with organising the rental side of things?

• Consider the local tax implications of buying, owning, renting and selling your property. Property and land tax in some countries can make UK stamp duty and council tax pale into insignificance!

• Make a will to cover local inheritance tax laws, and know that the laws of inheritance differ greatly from country to country.

• Consider the legal bills that you will incur when buying, renting or selling your property. You can be charged all sorts of extras like notary fees, valuation fees, translation fees…

• 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 and blindly sign on the dotted line. It is your responsibility to get informed.

• 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. It is not a case of one method suiting all. Be careful and get informed, speak to a qualified tax consultant.

• If you do buy through an offshore company and wish to take the property out of that company in the future how difficult and expensive will that prove to be?

• Are there going to be further tax liabilities if you sell your company owned property and what about if you try to take the profit from the sale?

• Look at the tax situation from both the UK point of view and the local situation in your country of choice.

• How are you going to finance your purchase? A second mortgage, cash, a mortgage in the local currency? Know the implications of each option.

• Cash may seem like the easiest and best way but can you really afford to have all that money tied up in a relatively difficult to liquidise overseas investment?

• A mortgage in the local currency? What about the changing exchange rates, how will this effect the amount you pay monthly compared to the value of the pound? There are options available to you to reduce this risk – consider spot or forward transactions and speak to a financial adviser to find out what’s available to you.

• A second mortgage maybe a cheap option at the moment – but remember you’d risk losing BOTH homes if you fell behind on payments.

The above list is certainly not exhaustive when it comes to the considerations you need to take when exploring the idea of purchasing a second home abroad. Seek professional legal, financial and taxation advice at every step of the way, stay informed and don’t be seduced by the sunshine. Don’t enter into an idea abroad that you wouldn’t entertain back under the rain clouds of Blighty!

And finally don’t let the above points put you off realising your dream – if you buy a second home in the sun you’ll find you never knew you had so many friends all willing to come out and visit you!