Investing in overseas property can be a smart financial decision, but it’s important to understand the tax implications of owning property abroad. From income taxes to capital gains taxes, there are several tax considerations that overseas property buyers should keep in mind. Here are ten tax tips for overseas property buyers to help you navigate the tax complexities of owning a property abroad.
- Understand your home country’s tax obligations.
One of the most important tax considerations for overseas property buyers is understanding your home country’s tax obligations. This may include paying income tax on rental income, capital gains tax on property sales, and inheritance tax when you pass the property on to your children. Make sure to consult with a tax expert in your home country to understand your tax liabilities.
- Be aware of local taxes.
In addition to home country taxes, overseas property buyers must also consider local taxes in the country where the property is located. Common taxes include property purchase taxes, property sales taxes, rental income taxes, and gift or death taxes. There may also be annual property taxes to pay.
- Take advantage of Main Residence Relief.
Many countries, such as the UK, offer Main Residence Relief for overseas property owners. This allows you to claim your overseas property as your primary residence for capital gains tax purposes. Keep in mind that you are typically only allowed one primary residence, even if you are married or in a civil partnership.
- Seek Double Tax Relief.
Double tax relief is available for overseas property buyers who pay foreign taxes on their property. This means that the foreign tax paid on your overseas property is excluded from the tax you owe in your home country. It’s important to note that you typically cannot get a repayment of foreign taxes through a double tax relief claim.
- Offset expenses.
If you plan to rent out your overseas property, you can claim tax relief on business expenses, including travel costs. You can also claim travel costs when visiting another country to view new properties against the rental income you receive from your existing property.
- Consider VAT expenses.
Some countries apply a VAT charge on property purchases, which can be as high as 20%. You may be able to recover the VAT by leasing the property to a hotel or rental operator, as the property is then considered a business. This can allow you to claim the VAT back. However, be aware of other taxes or higher rates that may come with this option.
- Borrow money to reduce tax obligations.
Even if you don’t need to borrow money to purchase the property, getting finance on your overseas property can be an excellent way to reduce your tax obligations. This is because your tax liability is typically limited to the net equity in the property.
- Be mindful of foreign exchange tax risks.
When selling your property, you may have little capital gains in the local currency. However, when costs are converted into your home currency, there may be substantial capital gains tax exposure. Keep in mind that holding onto the money in the local currency will still be a chargeable asset from a capital gains tax perspective.
- Expect changes to tax laws.
Tax laws can change frequently, so overseas property buyers should be prepared for changes in tax regulations. Make sure to stay up-to-date on any changes in tax laws that may affect your overseas property.
Evading taxes when investing overseas is illegal and can result in serious consequences. It is crucial to consult with a tax professional to understand the tax implications of investing in different countries and to ensure compliance with all applicable laws and regulations.
Investing overseas can be a great way to diversify one’s investment portfolio and potentially achieve higher returns. It offers access to new markets, industries, and currencies that may not be available domestically. However, investing overseas also involves additional risks such as currency fluctuations, political instability, and regulatory changes. It is important to conduct thorough research and due diligence before making any investment decisions. Overall, with proper planning and risk management, investing overseas can be a valuable addition to an investment strategy. Speak with one of our agents about your plans abroad.
