Seek overseas taxation advice before purchasing a property.

Seeking specialist overseas taxation advice before purchasing your home abroad can save you thousands of pounds.
In our buying guide section we introduce all the taxes that are required to be paid when purchasing a property in a particular country. These are always fixed (such as stamp duty is in the UK), however by seeking specialist taxation advice before the purchase, you can seek the best way to reduce your taxation bill when it comes to letting and selling your property, much of which can be influenced in the buying process or during the period you own the property.

This article is based on UK taxation law. It is purely objective and it is stressed professional advice must be obtained before purchasing an international property.

Taxation in 2 countries:
First thing to consider is that having an international property will require you having to pay taxation in 2 countries. Check with our buying guides to see if the country has a double taxation agreement with the UK (all the countries we currently sell do). This means that any taxation you have to pay in the overseas country can be offset against the tax bill in this country. For example if the tax bill you owe due to a sale of a property in the UK is GBP10,000 and you have already paid GBP8,000 tax in the overseas country you would only need to pay GBP2,000 in the UK. Unfortunately you are unable to claim back higher taxes paid abroad, so if in the same example you had paid GBP12,000 abroad you would not be able to claim back the GBP2,000 in the UK.

Remember, if you are UK citizen and resident, you will have to declare all monies earned on foreign property in the UK, both from rental income and gains made when selling a property, and will be liable to pay taxes as if the property was in the UK. The government is currently clamping down on those failing to declare income and large fines can be imposed. UK Revenue and Customs routinely share information with the foreign counterpart.

Offsetting costs against income.
Taxation in general is paid on added value. This means that tax is paid on the net profit made from rental income or property disposal. This usually applies in any country. Therefore it is essential you keep all receipts in regards to the cost in purchasing and selling a property and maintaining a property. Items such as letting company costs and advertisement can be offset against the money earned in rental income.

Capital gains.
The principal tax paid in disposing of a property is capital gains. This is a tax paid on the gain of the property. i.e the difference between purchase price and selling price minus all costs involved in the process. The capital gains tax varies from country to country, but in most countries it is tapered. This means that the longer you own the property the lower the tax rate will be. In the UK it is tapered over a 10 year period currently and in addition there is allowance up to which you do not have to pay tax. Currently this figure is GBP9,200. So for the first GBP9,200 an individual does not have to pay tax, this is doubled if it is in joint names.
Private Residence Relief Election.
If your overseas home is at anytime your principal (primary) residence you do not have to pay tax in the UK of any gain made during this period or the final three years. This is a crucial law that with careful planning can be utilised to reduce your tax bill considerably. Action is required in the first 2 years of owning the property to make sure it can be elected for Private Residence Relief. It is possible to have the property as your primary residence for only a few weeks when you sell your property to get 3 years capital gains tax relief on the property, although careful planning and advice must be taken to ensure it is carried out correctly.

This article is based on UK taxation law. It is purely objective and it is stressed professional advice must be obtained before purchasing an international property.

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