Landlords

Landlords contemplate overseas investment to avoid new tax hike

Warren Lewis
|
16th May 2016
france
""

A new report from PropertyLetByUs.com has revealed that around 23% of landlords are contemplating overseas property investment as a means to avoid the new stamp duty rise introduced by the Chancellor last month.

The study found that the Government’s new tax measures may drive some landlords to invest outside the UK, in an attempt to secure a better return on their investment.

In the survey, landlords were questioned on what their top overseas locations were. Unsurprisingly, France took no 1 position, for one in five landlords (23%).  Spain came a close second (18%) followed by Italy (11%), Bulgaria (3%) and Germany (1%). It is estimated that a quarter of foreigners that own second homes in France are British, making them the largest group of international owners.  

According to PropertyLetByUs.com, if landlords are considering purchasing property overseas, it is vital that they get to grips with the different laws and taxes surrounding property ownership.

Jane Morris, Managing Director of PropertyLetByUs.com comments: “Each country has different tax laws relating to property and they can change quickly, with little warning. For example, in 2012 the French Government imposed a 15.5% social charge on capital gains from the sale of second homes or rental income – a measure which was estimated to bring in €250 million a year. Tax on rental income rose overnight, from 20% to 35.5%, while capital gains tax on property sales rose from 19% to 34.5%.

These new tax measures hot overseas investors hard and meant that for example, that a British couple who bought a French property for €200,000 20 years ago and were selling it for €750,000, they would have to pay almost €60,000 in social charges, on top of the existing capital gains tax. They received no credit against their UK tax bill for this amount.

This onerous tax measure overturned in 2015 by the European Union's top court, who deemed it illegal and ordered the French Government to reimburse tens of millions of euros to British and other EU non-resident owners, who rented or sold their properties in the past two to three years.

Clearly, overseas property taxation can be more costly than the UK, despite often much lower property prices. It is important that landlords take into account potential tax hikes and don’t get sucked into all the marketing hype that surrounds overseas property investment.  Property experts will often highlight new markets they appear to be investment hotspots and you may be able to find bargains in countries where prices have fallen dramatically, but it's often wiser to buy in more established markets.”  

PropertyLetByUs.com has put together some tips on investing in overseas property:

Location: Make sure your property is in an easily accessible location with good local amenities and in an area popular with tourists. Don’t forget to take into account the holiday season in the area - many tourist destinations virtually shut down when it comes to the end of the season.

Going Rate: Find out what the going rate is to rent similar properties in the area to get a realistic idea of how much you could make. Or even better, if the property you are considering buying is already being rented out, find out how much the current owner charges and how many weeks per year the property is occupied for.

Tenants: Finding tenants for your overseas property:  It can be a good idea to market your property through a local estate agent but you will need to take its fees into account, especially if you want the agent to manage the property. Cheaper marketing options include dedicated holiday lettings websites. Word of mouth through family and friends is another good way to find potential paying guests.

Rental income: You must pay income tax on rent you receive. You can deduct some expenses from your rental income to reduce taxable profits, but only those that relate to your lettings business

Related articles
More from Landlords
Latest from Financial Reporter
Latest from Commercial Reporter
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.