Property Finance

Whether you are buying property overseas as a holiday home, an investment or as a long-term residence, it is important to understand - and prepare for - all the financial implications of your purchase. Taxes arising from your circumstance can come as an unwelcome surprise. Well-informed, forward planning is crucial to protect your financial interests, as well as those of your family if you would like them to inherit the property one day.

Property represents a very large investment for most of us and investments can move both downwards as well as upwards. Any investment risk is immediately heightened when that investment resides on foreign ground and is subject to unforeseen government changes in legislation or regulations.

However experienced you are with the UK property market, buying property in a foreign country is completely different and therefore expert advice is essential. Each circumstance is individual and there is no substitute for specialist, country-specific advice and
experience. It is of fundamental importance that you complete your purchase in the most efficient manner appropriate to the country in which the property is situated, or you may suffer costly tax and ownership in the future.

Some key points to consider:

	Does the country have forced succession laws? This means that you cannot leave your property and wealth to whomever you like, not even your spouse. Some of it would have to go to your children. In this case, should you consider methods by which these succession laws can be avoided?
	Does the country impose an inheritance/succession tax, and if so does it apply between spouses (unlike in the UK)? What would happen if you had an inheritance tax liability in this country as well as the UK? What can you do to avoid such taxes?
	Are you intending to live in your country of residence indefinitely? If so, you may be able to take steps to escape the UK inheritance tax net (something that does not happen automatically when you leave the UK to live overseas).
	What is the best ownership method for your property? For example, should you use an offshore company? The pros and cons of this method vary greatly between countries. The ownership method you choose (especially in countries like France) could have a significant impact on succession taxes in the future and who may inherit your property. You therefore need to get this right from the outset.
	Do you intend to leave your property to someone other than a spouse, for eg, your long-term partner? In this case succession taxes and laws can be much more severe and you would want to take all necessary steps to make life easier for him or her.
	Are you planning to rent out the property? You need to establish what your tax obligations are to both the UK (if you remain resident there) and the country the property is located in. Tax would usually be due in both countries, with different methods used to calculate how much is due, but in many cases a double tax treaty would prevent you paying tax twice on the income.
	Likewise, you need to be aware of all your capital gains obligations when you come to sell the property.
	Will you be taking up residence in the country you are buying property in? If so, you will most likely be liable for tax there on your worldwide income, gains and possibly wealth (depending on the country regulations). This could mean you pay more (or perhaps less) tax than you do in the UK, which could affect your monthly income. Remember that money held offshore will also need to be declared.
	Pensions and a wide range of tax efficient arrangements in the UK (PEPs, ISAs etc) are not tax efficient in most overseas territories. Should you therefore move your capital into other structures that will be more tax effective in your new country? The rules are different in each country and you will need guidance to get the best from these overseas arrangements, but you may be surprised at how much tax you are able to save.
	Does the country have a wealth tax? This would be a new - and extra - tax for British people.

Choosing a financial adviser

It is important that your financial adviser is fully up-to-date and has experience dealing with the tax rules of the country you are buying property in, otherwise you may find you end up losing money. You need to either find an adviser based in the overseas country (provided he remains up-to-date with the UK regulations) or a UK company with branch offices or representatives abroad.

The regulation of financial advisers abroad is rarely on a par with the UK's strict regulations, so choose your adviser with care. Establish how the company is regulated and if it has Professional Indemnity Insurance or something similar. There are many 'one man bands' or very small companies offering financial advice to expatriates, but few of them can provide much security in case something goes wrong. Make sure the company is well established and it is usually better to use a large firm which works to UK regulations. Ask to see the company's terms of business before proceeding and when making an investment never write the cheque to the financial adviser himself; it should be made payable to the financial institution he is recommending.

Whether you are choosing the best way to finance your property, or the best ownership method, or reviewing your financial planning on a move overseas, you want to get the best advice possible, get things right from the outset and save money where you can. It is therefore sensible to take a bit of time to research all the financial implications and find the best advisers you can to help you. A little bit of time and effort now could save you, and your family, significant money in the future.

Next Step

If you are looking to fund your purchase with a UK mortgage, we recommend selecting John Charcol, the UK's leading independent mortgage broker, as your nominated adviser.
If you prefer an overseas mortgage you should discuss your requirements with Baydonhill Plc, the only UK company offering a fully integrated financial services solution for overseas property buyers.

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