by Mark Johnston
Buying a Property Overseas. Part 2.
It seems that at a time when every penny counts people have realised that they could potentially get more for their money by buying property abroad.
The boom in buying property abroad began with the fall of interest rates. However, house prices in the UK begun to fall towards the end of 2012 and mortgage rates are also starting to look better for buyers, thus tempting people back to the UK housing market.
Although for the savvy buyer there are potentially good deals to be had throughout the eurozone. Hard nose home buyers with sterling to spend can benefit from a double whammy created by the euro crisis.
Recent analysis reveals that Spain is the main bargain area, in particular the Costa Del Sol. Its pleasant, healthy climate and wide selection of properties make it the most popular destination for an overseas property.
Charles Weston Baker, head of Savills estate agents International, suggests “Spain has seen dramatic price falls, not least because banks need to shift distressed stock. Consequently, they are offering high loan to value mortgages on properties that are discounted by some 70 per cent compared to their 2008 peak”.
Such eye-stretching apparent bargains need to be scrutinised with care before buying in the crisis torn euro zone.
James Price, a partner at Knight Frank International, urges prospective buyers to proceed with caution.
Industry experts warn perspective overseas buyers not to get sucked in to claims of huge capital growth and rental yields when viewing properties.
It is therefore essential to employ an independent lawyer, with no connection to any developers or agents, who is fluent in both English and the local language. The lawyer should not only understand property law in that country, but how it relates to non-residents.
Britons who buy informally or with out professional advice overseas often discover they do not obtain full ownership, or their title is impaired by unexpected debts.
Buyers should also think carefully about all the pros and cons of buying a property abroad and remember that they are liable for taxes in both the UK and abroad.
Until very recently, owning a second home that could be let out to holiday makers for a few months a year was highly advantageous as losses incurred on these hypothetical ‘businesses’ could be offset against the owners income tax liabilities on any other earnings. Also capital gains tax and inheritance tax liabilities could be deferred or even avoided.
However, HMRC’s legal advisers have recently questioned whether or not properties let as holiday homes are really a business at all, rather than investments.
Therefore a series of recent tax changes will now affect the income, capital gains and inheritance tax planning for hundreds of thousands of holiday home owners.
George Bull, senior partner at accountants Baker Tilly, said “many people who buy property as holiday lets do so once the children have left home, with an eye to supplementing post retirement income in a way that does not attract inheritance tax on death. For them, these tax changes are a major worry”.
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