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  • Overseas Investing

    BTL in Europe?

    There is very little incentive indeed to be a BTL owner in the UK anymore under the current treatment of landlords and the potential treatment of Landlords by Corbyn's government too.

    I can't see the value in a future where I:

    • Am being forced into a higher rate tax bracket due to S24 tax being the Gross rental value including mortgage interest
    • Can't get rid of a bad tenant because 3 year AST is the norm and Section 21 abolished
    • Can't increase rent to allow for the fact that estate agents are now going to pass their tenant fees on to me instead of tenant.
    • Can't sell because CGT is now going to be brought in line with Income tax levels
    • HAVE TO sell to my tenant - but at a 30% discount.
    • Can't buy more or sell to company because SDLT surcharges are off-putting.

    The agenda against long term BTL landlords is pretty clear. In the UK I would probably turn to a different aspect of Property such as construction/development, holiday lets. or look at overseas markets.

    In certain areas of Europe I've seen you can buy property that is half the price of London prices, that can rent for similar London prices, especially in SA type scenarios. Much better yields and much less restrictions. Only issue is availability of finance. And there's even more opportunities outside europe too.

    Has anyone looked into, currently investing/considering tapping the european/overseas property markets? I would be interested to read people's opinons/experiences.

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    I let property in France but I live here.  I keep up to date on the tax arrangements between the UK and France because I may move back there one day.  At the moment, if I moved back I'd be liable to a 30% tax rate which applies to non residents on French rental income (was 20%) but I can appeal that if my UK income added to my French income would mean I'd be better off being taxed at my marginal tax rate.  I wouldn't have to pay the French social charges because my health and social security would be covered my another EU member state, and as EU Citizens we can't be charged social charges by  more than one member state.  France has recently changed one of their social charges so it doesn't pay into the healthcare system and this  means that I would still have to pay that 7.5% charge (as opposed to 17.2% if I lived here and my healthcare was covered by France). 

    However, though the arrangements of the double taxation treaty won't change - if the UK leaves the EU then the exemption from social charges (or at least part of them as from this year) won't be there anymore.  This means that if I had enough income in the UK to make me liable to the base tax, I'd be paying that 30% in tax and also 17.2% in social charges on all my rental income profit (France still allows interest on finance as an expense, as well as the cost of insurance and property taxes).  So nearly half my profit would be gone if I lived in the non EU UK or any other non EU country.

    My dilemma should give you an idea of the things you need to think about.  Find out if there is a double taxation country between the UK and the country you want to buy in.  Find out how that country taxes non-residents as opposed to residents and bearing brexit in mind, non residents who are resident in an EU  member state as opposed to non residents who are resident in a non EU country.  Find out whether they charge extra taxes upon purchase to non-residents.  Find out whether the annual property taxes are  more expensive for non-residents.  Same again for capital gains taxes (which also attract social charges in France).  Also the way capital gains work.  Is it a straight percentage of whatever the gain is or does it decrease over the term of ownership and eventually disappear?

    Also check very carefully for both inheritance laws (France as an example has reserved inheritor laws which you can get around if you are aware of them but if you're not, you could fall foul of them) and inheritance taxes (France has a 60% rate for all but a very small allowance for non blood relatives, for instance, and even the allowance for kids is fairly low at around 100k each, if I remember correctly).  Brussels IV allows you to opt for the inheritance laws in your home country (not connected to whether the country is in the EU) but you still have to consider the inheritance taxes.  If I leave anything to my stepdaughter she gets a small allowance of around 1500€ and then everything else is taxed at 60% because she's not a blood relative.

    Finally - check out what your exit plan would be.  To use France as an example again, the property market outside of big towns and cities is very slow and people can be stuck for  many years trying to sell property.

    Hope that helps.  Check everything out and don't rush into what could be an expensive 'bargain'.

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    All that was from the financial point of view but you should also consider the aspects of managing a property from another country, not simply at a distance.  There are other threads about that on the forum.

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    Thanks Deborah that was informative. I'm aware of French tax laws and in particular succession. And its not easy by any means to say the least.
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    It's not just France.  I've read enough in various expat groups to know that other countries have similar (or other 'different' to us) laws re inheritance and taxes and you really need to check out the country you buy in, whether you live there or not.  I was considering a change of scene to Spain until I read about theirs Smile

    Blevins Franks have some guides that might be helpful.

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    Jamie, the points you make are all good, but will it be possible for you to have this level of knowledge and gut feeling about any country that you're not resident in?

    At least the devil you know is the devil you know, a property outside of the UK could be the devil you don't yet know until you've bought!

    A family member who bought (easily) a property in Italy had major hassles when selling and the bureaucracy was at another level to that of the UK. Everything that was not an issue when they bought suddenly became an issue when they sold and it took 18 months to finally sell it - at a loss!

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    The issues they had in Italy that caused them to sell at a loss (if you know what they were obviously.)

    I am aware of the beaurocracy there being crazy - my wife is Italian. I went to open a bank account there and it took 3 days and 40 signatures to open a basic account for foreigners with a cash card.

    I would consider buying in Italy but your post has me thinking twice.

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    They bought a new build over there on a holiday development so obviously paid a shiny new build premium. It was the fixtures and fittings that caused most problems - can't remember the specifics now but an installed kitchen before they bought was found to be larger than the plan, so this caused problems. They also had to be there in person to sign the transfer documents, solicitors were unbelievably slow, it was like doing a transaction back in 1900 was the analogy.

    The person they sold it to was not from Italy, and this caused delays with ID checks etc. etc. and they had to go in person as well to get the deal done. Thankfully they didn't bail out as there wasn't a queue of replacement buyers.

    Easy to buy, hassle to sell.

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