PAM Guide to Wealth Management

Overseas property

Thousands of British residents have been buying second and even third homes in Europe and further afield. The attraction of having property in sunnier countries is easy to see, but without proper tax planning the implications can be serious.

When buying property abroad, you may not only be liable to UK taxes such as income tax, CGT and IHT but also the taxes of the country in which you have bought your property. The latter can include income tax on rents (or deemed rents), CGT on the sale of the property, IHT, an annual wealth tax on the value of the property, local stamp duty and regional and local taxes on the property.

If the UK has a double taxation treaty with the country in which you have bought your property, then the tax paid overseas may be deductible from your UK tax bill. This is not always the case if the UK has no equivalent tax (such as annual wealth tax). However, if you pay a higher rate of income, CGT and IHT overseas, you will not receive a rebate!

It is possible to use structures to try to mitigate your UK or overseas tax bill, but this will often have to be done at the time you purchase your property. The structure must also comply with the tax and legal peculiarities of the country where you have bought your house and you must ensure they do not trigger further tax problems in the UK. In Continental Europe, the use of trusts and offshore companies to hold property can make the local tax position worse.

Other laws exist overseas of which you need to be aware. For example, most European civil law countries have forced heirship rules. As we saw earlier, these sometimes provide that on death a part of your estate passes automatically to your children, even when you have made a Will. This can have knock-on tax consequences in your country of residence or domicile. It may be possible to retain flexibility in terms of succession planning by corporate holding vehicles, but as stated above this can cause UK and local tax issues, so it may be sensible to seek professional advice.

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