Alas, purchasing and owning overseas property brings with it tax liabilities. Here’s a quick guide
TAX W
ith economies in most of the West in scarily precarious states, governments in popular buying destinations are keener
than ever to rake in as much money from tax as they possibly can. This makes ignoring tax obligations even more foolhardy than before the economic downturn, so make sure you know exactly what you’re liable for as a property-owner, and pay up. It’s often worthwhile employing an overseas lawyer or accountant – or in Spain, a gestor – once a year to ensure you make the correct payments at the right time. The fi rst batch of tax you’re likely to pay is that associated with purchasing a property, what we broadly term stamp duty in the UK. Abroad this is often called transfer, or purchase, tax but in essence they’re all the same thing, that’s to say a government tax levied on the buyer in a property transaction and calculated as a percentage of the value of the transaction. Transfer tax rates vary by country and often vary according to the value of a transaction. It is usually minimal on new properties, although new builds will typically be liable for VAT. For example, in Spain transfer tax is seven per cent – eight per cent in some regions – on a resale but one per cent on a new build, which will also be liable for VAT, or IVA, levied at eight per cent. Land will usually attract a different rate of tax. In Europe, taxes for a property transaction typically are paid via a notary and your fi nal notary bill would include transfer taxes, as well as fees for notary services. Once you own a property abroad, you’re likely to have an annual municipal real estate tax to pay, the equivalent of council tax in the UK. In Spain this is known as IBI, in Italy ICI, while in France there are two types – taxe d’habitation (paid by the occupier, whether they own the property or not) and taxe foncière (paid by the owner). Municipal taxes are based on a property’s rateable value as recorded by the local government, which tends to be
much less than the current market value of that property, (at least this was the case before prices crashed in some destinations). If you let your property, you’ll need to pay income tax on rental income locally and in some countries, including Spain, even if you don’t rent out your property, you’ll be required to pay what’s termed “imputed income tax”. Capital gains tax (CGT) is another form of tax you’re likely to encounter when you come to sell. The tax is levied on the gain between the purchase and sale price of your property, less an allowance for any repair/improvement work that might have been undertaken (and you have receipts for).
In some countries, CGT is scaled down with time, while
in others is doesn’t exist at all. It’s also worth noting that in some countries, if the vendor is not a resident, the buyer must withhold a percentage of the purchase price and pay it direct to the tax authorities – this is to cover any CGT the vendor might be liable for. As a tax resident in the UK, you’re taxed on worldwide
income, which would include capital gains and income generated through an overseas property, regardless of the laws local to that property. The good news is that the UK has double taxation treaties with more than 100 countries, including most popular second home destinations, so you’ll never pay the same tax twice.
Don’t ignore inheritance
Before you complete on a property it’s worth talking through inheritance issues with a legal/ tax expert. They will not only help you to ensure your chosen beneficiaries inherit your property, but may also recommend ways of reducing the inheritance tax that your beneficiaies could be liable for. Doing this early on could save your family much heartache and expense later on.
AIPP CONSUMER GUIDE 27
SECTION 3 ESSENTIAL SERVICES
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