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efore you buy a property abroad, are you fully aware of the costs associated with purchasing it, plus the ongoing costs and taxes that you need to cover every year?

Don’t assume that either or both of these will be

lower than in the UK – second homes are viewed as a luxury in tough times, and ideal sources of extra revenue in the form of taxation. Here are the major areas to consider.

Buying costs

Purchase costs can add up to over 10 per cent of the sales price of a property, depending where you buy, so you really need to understand the market you are buying into. If you’re buying a €200,000 property in Spain, for example, then you should really automatically add €20,000 (or 10 per cent) to any sale price when considering if you can afford to make an offer on a property.

Buying costs involve a combination of transfer tax or stamp duty, notary/land registry costs, legal fees plus any mortgage arrangement fees. If you’re buying new-build there’s the VAT and this has been subject to change in the past two years in Spain, to take one example, so make sure you know what the most up-to-date rate might be.

Running costs There are also ongoing or running costs on second homes – something that is often underestimated and the reason that owners end up not being able to afford to keep a property or are forced to rent out their homes.

In the past couple of years, second homes have been targeted by Eurozone governments as a good source of extra income; we have seen this in Spain and France, especially. You need to consider the yearly taxation you might have to pay as a non-resident (or second home) owner as well as community fees, homeowner association fees (in the US), insurance, and mortgage costs. In Spain there’s an annual property tax called IBI whilst in France there are yearly owner or occupation taxes. With this in mind, do you understand the difference between being resident in a country and being tax-resident there? This has implications for inheritance tax. In fact, it can be worthwhile using an overseas

lawyer or accountant – or in Spain, a gestor – once a year to ensure you pay the right tax - at the right time. This is especially relevant since Spain introduced a new tax on property owners’ worldwide assets over €50,000 in 2013.

Whatever you might have seen advertised, most lenders in Spain will typically offer foreign buyers a maximum loan to value (LTV) of 50 per cent, whilst in Portugal and Turkey the figure is 75 per cent.


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