operating taxes, profi t taxes, and VAT – although VAT is generally charged only on the purchase of a newly built property and not an existing one, in most of the few countries where it is levied at all. Other taxes that you might run into include wealth tax and inheritance tax. Transaction taxes are charged in one form or another in most countries. Although they may be called many different names, for example, stamp duty, transfer tax, or purchase tax, they are essentially one and the same – a tax levied by the country’s government when you purchase a property in its domain. The amount charged varies from country to country. In some countries the tax is only charged on resales and not new properties. However, often when this is the case VAT is charged on new build property. Don’t forget that taxes are controlled by the government and not the agent or developer, and these can be subject to change. In most countries, property owners will additionally
T
pay operating taxes, usually an annual real estate tax, similar in purpose to the Council Tax in the UK. In Spain the tax is known as the IBI. Based on the valor catastral (the offi cial rated value of the property), IBI is paid by every homeowner regardless of residential status. As a municipal tax, the amount payable varies by location and property size, but can be in the region of €1,000 per annum for a three-bedroom house in a coastal region. Unlike income tax that is declared, the IBI is charged to property owners in the form of a bill. Profi t taxes are almost always known as Capital Gains
Tax (CGT). This comes into effect when you sell an asset and make a gain or a profi t. In many countries, the tax is charged on the gain between the purchase and sale price, less an allowance for any repair/improvement work you have undertaken – and for which you have receipts. Some countries do not permit any allowances for renovations, though. Almost all do, however, apply some form of sliding scale to the amount of CGT charged. In Turkey, for example, CGT is not charged in the country once you have owned a property for more than four years. Elsewhere the amount charged reduces year by year – known as taper relief – until it is effectively nil. In France, for example, the amount payable reduces to nil after 15 years. Outside the EU, there may be different levels of CGT applied (and allowances) for residents and non-residents for tax purposes. Mistakenly, many investors believe that if no CGT is levied in the country where the property they are selling
axes are unfortunately inevitable. There are four main categories that may come into play in property: transaction (purchase) taxes,
is located, there will be none to pay. Such a situation would only be applicable if you were a tax resident of the country in question. If you are a tax resident in the UK, you are taxed on your worldwide income i.e. any money you have earned abroad is included and taxed at the applicable rate. You will probably pay CGT or a similar tax in the
country where the property is located because a withholding tax is applied in many countries when you sell an asset. Examples include Spain where the seller’s solicitor must withhold 3%, and the US where the purchaser must withhold 10% of the purchase price and hand it over to the US tax authorities. Rest assured that in all likelihood you will not pay tax twice – in the country where the property is located and in the country where you are a resident for tax purposes – because the UK has double taxation treaties with more than 100 countries. In these cases, the amount due in the UK will be adjusted to take into account the amount paid abroad.
Inheritance tax and wealth tax vary in their
interpretation country by country. Many countries do not have a wealth tax, the UK included. Inheritance tax is sometimes a matter over which you can have say, by drawing up a will in the country where the property is located, stipulating how the asset should be disposed. Lastly, there is sometimes a tendency to defray (or
even try to avoid) tax issues, but you’d be mistaken to do so. Unless you want to be considered fraudulent – and HM Revenue & Customs are extremely vigorous in their approach to tax evasion – you will have to pay tax. The good news is that if you are pro-active – that
is, you seek specialist tax advice before you set about purchasing property overseas – you may be able to put in place legal strategies that lessen the amount of tax ultimately payable. Always seek specialist tax advice.
Top Tips • Consider the tax implications from the outset
• Seek specialist advice from your lawyer or tax adviser
• Taxes are government controlled; especially when buying off-plan, check whether any changes are in the pipeline that may come into effect before your property is completed
• Don’t forget to consider inheritance tax, and whether you need to draw up a will in the country of purchase
AIPP CONSUMER GUIDE 25
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