Eddie answers: International property investment has been making the news recently, but not in the most positive way.
When many start out on the dream of a place in the sun, few imagine they will end up seeing bulldozers demolish their home and with it, their life savings.
This was unfortunately the case for Helen and Len Prior who last month watched their £350,000 home in Almera be reduced to rubble amid a new row in Spain about corruption and illegal construction.
For years there has been a steady flow of ex-pats making the move to sunnier climes, along with a growing number of those looking to buy a holiday home.
However, while you may be able to rely on the weather, the advice you get when purchasing a property overseas may not be so dependable.
From a dream to a nightmare
A case in point is Spain. The country has been the destination of choice for many, with the UK Spanish property market estimated at £12 billion. However, years of collusion and corruption between Spanish developers and local town hall officials has led to thousands of properties potentially being constructed illegally.
Now, the Spanish government is trying to remedy the situation and is acting to reclaim the nature reserves and coastal areas by earmarking tens of thousands of properties for demolition.
The situation is unfortunate and has no doubt sent a shiver down the spines of those with a place in Spain, or considering one, but this need not be the case.
Be aware
Here is a brief overview of the main points that brokers and their clients looking to buy in Spain should be aware of:
- Before purchasing a property in Spain, clients must obtain an NIE number and a residence permit, which can be temporary (for up to one year) or permanent (for five years, automatically renewable).
- Coastal property built at least 105 metres away from the high-tide mark or prior to 1988 should be safe from the Ley de Costas regulations.
- Income tax on property rental is 25 per cent of gross rent for non-residents, although there are ways to claim back some tax relief on this. This will be charged even if the property is not rented out, and if it is more of a second home – the Spanish authorities will calculate a national income based on 2 per cent of the declared value of the property, taxing this at 25 per cent.
- Wealth tax on total assets in Spain (minus any Spanish mortgages) is on a progressive scale from 0.2-2.5 per cent.
- Capital gains tax on the sale of the property is charged at 15 per cent for Spanish residents and 35 per cent for non-residents. Certain allowances apply which may reduce this liability after about five years of ownership.
- Inheritance tax is a complex subject in Spain. Potential buyers should seek specialist legal and tax advice on this before purchasing property.
- Expert advice – clients should seek advice from reputable independent solicitors, architects and surveyors with a good knowledge of the property market, laws and processes in the country in question.
- Legal backing – a lawyer will confirm that the property has title, planning, legal registration, etc. Just as prospective buyers should never buy ‘blind’ in the UK, potential overseas home owners must not allow themselves to get carried away with the romantic aspect of owning the holiday home of their dreams.
- Costs and contracts – costs should always be checked carefully and buyers should never sign anything that they do not understand. A true English translation of documents should be supplied so that the terms of any contract are clear.
- Tax and will implications – the implications of the laws affecting tax and wills should always be researched as each country’s laws can vary significantly.
- Buying off-plan – Eastern European countries are proving very popular choices at the moment and buying off-plan is common in this region. It is important to look closely at the terms and conditions of any contract for a new build property and, if necessary, negotiate on them.
While the images of heartbroken ex-pats standing by a pile of rubble may understandably cause consternation among some clients, with some expert advice and good local insight, the dream of a home abroad can be realised. With the domestic UK market proving increasingly tough, intermediaries could do well to look to foreign fields for new revenue streams.m
