If you are considering joining the great stampede overseas and buying property abroad, be warned that it can all be a bit more taxing than it first appears.
With the holiday season under way, many people will be tempted to join the growing numbers of Britons who own foreign property.
But potential buyers are being urged to be fully aware of the different tax regimes abroad before deciding where to buy.
Latest figures show there are 257,000 British households with second homes abroad, with the most popular place for Britons to buy being Spain, ahead of France, Portugal and Italy. The US is also a popular destination, with many also tempted by off-the-beaten-track locations such as Bulgaria.
But, Richard Proctor, tax partner at financial advisers Grant Thorn-ton, said: “While good weather, availability of low-cost flights and the cost of property are the biggest factors when making the choice of where to buy, the local tax implic-ations should also be carefully considered, as these can have a significant impact on the costs associated with the holiday home.”
“If you do buy a property abroad, income received from its rental may give rise to local taxes.”
“In many countries any gain arising on the sale of the property or merely its ownership can lead to a tax liability.”
“Furthermore, if the owner is a UK tax resident, rental income or gain on the sale of the property may also result in a UK tax liability, with the individual having to obtain relief under the complex ‘double tax relief’ provisions.”
“This is on top of all the property taxes associated with purchasing property.”
Among the things to consider are tax on rental income, wealth tax, capital gains tax, inheritance tax, and the interaction with UK taxes.
Mr Proctor said: “People who are considering taking the plunge should seek specialist tax advice both in the country in which they intend to buy and in the UK – otherwise it could end up costing them much more than they bargained for.”
“Once a property has been purchased, they should make sure their will is updated, and in certain circumstances, it would be wise to have a will in the country where the property is located.”