Buying property abroad
For many of us, the idea of buying property abroad and eventually living abroad, is our dream, especially with the British climate as bad as it has been over the last few summers. To own our own property in a lovely sunny country with little to do but while away the hours by the pool, is something that a lot of us will aspire to.
This Prudent Minds Guide has been written to help you look at some of the pitfalls, as well as to give you help and advice on what the legal implications of your purchase may be.
What to consider before buying a property abroad
By the time you have decided to live abroad, you will presumably have decided which country you want to live in. Although buying property abroad may vary in minor details, there are a few things you should always consider before going down the road of securing a purchase:
LOCATION - Do you want to be near the beach? Do you want rural or urban? How far from the airport do you want to be? How close do you want your neighbours?
FACILITIES - How close to the bars, restaurants and shops do you want to be? Is public transport a necessity? How far to the nearest sports facilities (golf, swimming etc)? Entertainment - how far to the theatres, cinema (if there are any)? How far to the doctors / hospital?
SPACE - What size of property can you manage? Do you want land with your property? Will you need the land for an income?
EX-PATs - Do you want the support of other Britain’s living abroad? What will your neighbours be like, and how often do you want to see them?
Tips for buying properties abroad
Once you have answered those questions, you are ready to look for a property. Find an estate agent in the correct locality, that is properly registered and hold a licence. Always make sure you get information about their fee's in advance, and above all, don't become obsessed with trawling the internet to find a property; be prepared to make trips to your locality to view properties in person. HOWEVER, be very wary of all expenses paid viewing trips, as you will be tied in to a very hard sales pitch.
If you are interested in a property with land, you will doubtless be regaled with stories of high capital growth and income yields. View these figures with a pinch of salt, and factor in what it will cost you to maintain the land.
If you have found the perfect property, make sure you find out from the estate agent what all the hidden costs will be; real estate tax, rubbish collection, water rates, utility charges, property income and wealth tax (if you intend renting the property) and any community fees.
Appoint a lawyer with an excellent command of the English language as well as that of the country you are seeking to buy within. There are a multitude of rules and regulations for each country, and they will need to be able to deal with all eventualities. In some countries you will be required to make a will lodged in that country, before you can buy a property, but in any case, it may be best to make a will in both Britain and the new country to establish what happens to the property should you die.
If you are planning on moving abroad on a permanent basis, then research tax, pensions and healthcare necessities as soon as you can.
Once you have found the right property and you are ready to make an offer, put your offer in writing (subject to contract). Itemise what you are willing to pay, when you will pay it, when you expect to be able to complete, anything you expect to be included in the price (any fixtures and fittings for example) and that it is all in good working and well maintained order.
If you have decided that Spain may be the place for you, read our dedicated buying property in Spain guide.
Finances for buying property abroad
We have already highlighted some of the hidden expenses you need to watch out for when buying property abroad, on top of the money needed to purchase the actual home! That said, it is possible to apply for a mortgage to pay for the property. Some UK banks will lend for overseas property, or you can apply to a bank in the country you are purchasing. You will need much the same information as in the UK i.e. ID, wage slips, audited accounts (if self employed). Of course, if you borrow from a bank overseas, you will always have risks with that currency. Consider opening a bank account in the country of purchase. The Lloyds TSB bank account link on the right will give you more advice to opening an account abroad.
The deposit on any property purchase will likely be at least 10% of the total price, and in some countries will be as much as a third of the price.
Other financial implications of buying property abroad
If you are planning to live abroad for more than 6 months of the year, your UK tax status will expire after 3 years, HOWEVER, any income from the UK will still be taxable. If you have retired, you can still claim your pension. Read more about this on our state pension guide. Some private pensions will only pay into a UK bank account, in sterling, so check this out. If it is the case, you will loose money in currency conversion when withdrawing it abroad.
Within the EEA (European Economic Area), and you have retired, you will receive free healthcare rights to the same levels as the people of that country. However, if you are not yet at retirement age you will need to arrange health insurance.
You will have to pay capital gains tax, dependent upon how long you have owned the property, if you rent out or sell, and your heirs may have to pay inheritance tax if you die, although this depends on the country the property is in.
Buying properties abroad that have yet to be built
This is known as buying off-plan i.e. you are buying from a plan that you have seen. Your lawyer should negotiate a well set out period of payments and the percentage of each stage payment. Any negotiation should set out a clear and comprehensive guarantee as to when the property will be finished, as well as considering what will happen if the builders do not complete.
If the developer has offered a guaranteed rental or a leaseback, look carefully at the small print of how this will operate. It may not be in your ling term best interests to enter into such a deal and may not reflect the potential of the property over time.
Buying property abroad to rent
If you plan to spend some of your time in your property, but to rent it out at other times you will need to consider its potential rental yield. Agents will often advertise property with a highly desirable rental yield, but is it realistic What about the periods the property is empty? You will also need to consider the expense of a management company to look after the property whilst you are away and also any maintenance costs for damage done.
You will be liable to pay income tax on the rental monies you receive, both in the country itself, and in the UK. For the majority, you will not have to pay the same tax twice, and you will offset the taxes paid abroad against what is owed in this country, but you must contact your local tax office for specific advice.