Buying Property Abroad
Budgeting for your Property Abroad
The true costs of a holiday property abroad.
Drawing up a budget for the familiar things in life such as utility bills or children's clothes can be taxing enough. But if you are budgeting to buy your first home abroad, there's no room for error. We can guide you through the realistic costs of buying, selling and renting out your overseas home. You should ensure that you have determined what your projected costs will be wherever you are thinking of buying your property abroad.
Buying your holiday property abroad
Holiday property abroad taxes: Regardless of where in the world you choose to buy, it is almost certain that the government of that country will charge some kind of property tax. But of course its name will differ and so will the cost.
Some countries make UK Stamp Duty – which is charged at between one and four per cent, depending on the value of the property – appear cheap. For example if you buy a resale property in Spain you will pay seven per cent of the property price in Resale Purchase Tax. If you buy a brand new property it will still cost you seven per cent in IVA (or VAT).
In Italy, buying property is more expensive still. The combined taxes – including Registration Tax and Mortgage Tax – cost 10 per cent of the property price.
Even taxes within the same country often vary. For example, in Croatia Real Estate Transfer Tax is payable at five per cent if you purchase a resale home but just two per cent for an off-plan property.
Property abroad legal and valuation fees: It is highly recommended that you hire an English-speaking solicitor or property lawyer in the country in which you are buying. To pay for this you should budget for between one and two per cent of the property price although in some countries – Spain for example – lawyers can cost up to three per cent.
Also be aware that in many countries the same lawyer will act for both buyer and seller. In this case you may want to seek separate independent advice which will hike up costs further.
Property abroad agency fees: Many people use an overseas property agent based in the UK when buying abroad. They have contacts and experience and will do all the legwork for you. In some cases you won't even have to visit the country. But, depending on the level of service offered, an agent could cost up to seven per cent of the property price.
Renting out the property abroad:
Particularly if you have a mortgage on your overseas property that you pay each month, it can make sense to rent it out for the time that you are not there.
Holiday property abroad leaseback schemes:
If you have bought in France or some parts of Italy you could consider joining a leaseback scheme, although you will be restricted to certain new developments that are built for the purpose.
The scheme involves signing a contract with the leaseback management company who will guarantee you a rental income for a fixed period of time – usually 10 years. This income will be given as a net annual yield.
During the leaseback period the management company will be responsible for both carrying out the maintenance and the cost of it. However, your access to the property will be restricted to between two and three weeks a year, and you may not be able to specify when these weeks are. Leaseback schemes are therefore best suited to buyers who regard their holiday home primarily as an investment.
Renting out your property abroad through an agent:
You can also use a UK-based property agent to rent out and manage the property on your behalf. This will cost in the region of 20 per cent of your monthly rental income.
Renting out your property abroad yourself:
To keep costs down you could advertise your home on a holiday home lettings website, which typically means a one-off fee of around £100 for 12 months. Be aware that you may face long void periods – especially out of season – when you will have to find your own mortgage repayments.
Word of mouth:
If you consider any monthly income generated from your holiday home a bonus, word of mouth can be very effective. You could start by sending an email to your contacts book with details, prices and several clear pictures of the property.
Maintenance:
As well as paying for the upkeep of your property, which is especially important if you intend to rent it out, you will also encounter day-to-day running costs. These include local taxes (the equivalent to our Council Tax) and – if you have bought in an apartment block – ground rent and service charges. There is also utilities such as water and electricity to consider.
The running costs require you to have a local bank account as you will need to pay in local currency. To receive utilities you may have to set up a Direct Debit from this account.
Selling your holiday property abroad:
It may not be what's on your mind now, but selling property abroad also incurs costs.
Capital Gains Tax on your holiday property abroad:
If it is your second home you may have to pay Capital Gains Tax on any profit made when you come to sell it. Rates of CGT vary between countries and are often tiered according to the length of time you have owned your property. Sometimes, this tapers down to zero. For example you are CGT-exempt in France after 15 years and after just three years in Croatia.
You may also have to pay CGT in the UK but the tax you have already paid overseas is usually deducted from the bill. Each individual also has their own personal allowance they cannot be taxed on. Seek tax advice.
Estate agent costs:
Overseas estate agents can make the ones in the UK seem very competitive! In some countries, such as France, it is not uncommon for the seller to pay between 10% and 12% of the property price. In Italy, the typical 6% estate agency fee is shared between buyer and seller.
You can cut costs and increase exposure of your property by using a web-based English-speaking property agent. You may pay a small one-off fee to advertise your property on the site but the agent often takes most of its fee from sharing the commission with their overseas estate agency contacts.
More information on buying property abroad:
Researching buying a property abroad Why buy a property abroad? Points to Consider when buying a property abroad How to finance your property abroad – various options and likely costs Building a property abroad General tips for buying a property abroad Buying a property abroad with friends Choosing your new property Could buying a property abroad secure your future Insuring your property abroad Buying property abroad as an investment Living permanently in your property abroad Maintaining your property Property abroad - don't stop at Europe Property abroad - FAQs Renting your property abroad Tax and your property abroad The responsibilities of owning a property abroad Viewing your property abroad Legal considerations when buying a property abroad