Expert View: How To Buy Property Abroad

Tax rules frequently change, as they have in France, so buyers need to be careful not to get caught , says Armando Rosselli, head of tax and wealth structuring at Coutts. Big Apple: buying in prime cities requires tax planning Photo: Alamy By Armando Rosselli 8:00AM BST 13 Jul 2013 For our clients – many of whom prefer European destinations, notably France and Spain – estate planning comes to the fore. Inheritance rules differ between countries. In France, for instance, Napoleonic succession laws mean that there is a compulsory obligation to leave a certain proportion of a property to children. Advice will often be required to structure the purchase of the property – this will normally include individual or joint ownership or more complex structures such as corporate or fiduciary vehicles. Furthermore, in many circumstances local estate taxes remain payable, even if property owners remain residents of the United Kingdom for tax purposes. Most UK residents, even if relocating, will retain their UK domicile and will still suffer UK inheritance tax as a result. Relief against local inheritance taxes will usually be available via a double tax treaty agreement between the UK and the country where the property is located – but it goes to show why advice in both jurisdictions is vital. When our clients buy a French property, we bring together a UK lawyer and a reciprocal lawyer in France to facilitate the transactions, discuss estate planning and to liaise with conveyancers, known as notaires. There’s another reason to have experts on hand – tax rules frequently change, as they have in France, so buyers need to be careful not to get caught out. Buyers also need to be aware that property taxes may be due. Florida, for example, tends to have higher property taxes than many overseas destinations. We find that for many an overseas buyer it is a trade-off between an emotional purchase and wanting to live in a certain jurisdiction, balanced against the tax and costs they have to pay to live there. Whichever location you choose, whether it’s Florida, France, Portugal or Spain, you will find different planning regulations, succession laws and costs. Like any other investment, get all your ducks in a row before you sign on the dotted line – or you could end up with property or land without clear ownership, or not paying the correct amount of tax. First, overseas property buyers need to consider if the time they will be spending at their new overseas property could constitute taxable presence, and check whether there are double tax treaties in place that could relieve this, or whether other aspects might affect their individual tax status. Second, there could be local property taxes or duties applying on purchase and on an ongoing basis, which should be taken into account while considering the investment. In some jurisdictions, residents might only be allowed to buy residential property. Naturally, when it comes to buying property overseas, one of the key questions is financing. Should a property buyer borrow in the currency of the property’s location – and what are the ramifications if you do? If this route is chosen, there will be a currency exchange risk. This risk can be accentuated if someone borrows in the local currency, say euros, but all or most of their income is in a different currency, say sterling. If sterling falls markedly against the euro, a consequence would likely be that your loan repayments would increase, causing cash-flow problems. Foreign currency loans and assets might also have UK capital gains tax implications. We have strict lending criteria on overseas mortgages – it is vital that clients understand what they are getting into. While our clients tend to opt for the traditional expat countries for long-term occupancy, we are seeing different trends for those looking at buying a second home. Barbados is fast becoming the holiday home destination of choice, although some of our younger clients are turning to Ibiza. Others are looking at alternative options. For example, we had a client looking to buy a villa but who ended up buying a yacht. He now has a “floating villa” and can holiday in Barbados, Italy, Spain and Portugal – enjoying a variety of quality restaurants, beaches and resorts. It’s a decent solution – although yachts can be expensive to run and consideration still has to be given to tax and ownership. Whether people opt for a farmhouse, a villa or even a yacht, it is important not to let your heart rule your head. Consider the implications and take advice – it will help you keep your house in order. Armando Rosselli is executive director, head of tax and wealth structuring at Coutts Taylor Scott International