Buying somewhere abroad can be a dream come true, but you've got to stay savvy if you don't want it to burn a nice big hole in your bank account.
Luckily, following just four rules should ensure maintaining your pad doesn't become a palaver.
One of the things that often takes people by surprise after they buy a place abroad is just how little time they end up staying there.
Sure, you might assume you'll be whisking the whole family over for numerous weekend getaways and extended holidays, and that might make you reluctant to let others rent the place in your absence. But it's worth sitting down and really considering how often you REALLY stay there.
Chances are, your property is spending most of the year just sitting empty and costing you money, even during holiday periods. So make it earn its keep and rent it out. Thanks to convenient new self-catering rental sites like AirBnB, making money from renting is a doddle.
OK, so you might know the foreign country in question really well. But there's a world of difference between knowing your way around the local menus, or navigating between beaches and landmarks, and doing business there. And that's how you should think of your foreign property: a business.
Expert help isn't an optional extra here, it's essential. You'll want to make sure it's INDEPENDENT help as well: someone who's on your side. Having a local lawyer specialising in property will ensure you're made aware of – and stick to! – the often complex local rules on renting.According to the British Embassy in Spain, British homeowners there have been slapped with fines up to €30,000 for not adhering to the rules. That's enough to sour anyone's sangria.
Tax can be tangled, complicated and (let's face it) utterly boring at the best of times, and it's all too easy to fall into the "out of sight, out of mind" mentality when it comes to your overseas property. It can be a financially fatal mistake to make, as not getting up to speed on the country's tax rules can lead to severe penalties down the line.
Local taxes may be payable and if you're renting out your holiday home then your income will be taxable in that country too, even if you don't live there, and you've GOT to get to grips with how much you'll have to pay back into the host nation's coffers.
You'll also have to tell your own, home country about your income from abroad. So if you're in the UK, that means putting the figures into your HMRC tax return. Don't worry, you won't have to pay tax on the same cash all over again, as there are "double taxation agreements" between countries to prevent this – as long as you lay out all the numbers properly.
Keeping a property abroad will most likely mean making a lot of international money transfers.
The costs of this can add up to a whopping amount over time, especially if you rely on the usual suspects like banks or currency brokers, which will either charge commission or deviously alter the exchange rate to make a profit – or both.
The cheapest way to send money abroad for mortgage payments, bills, or local agents & legal fees, is to do it through one of a new breed of online provider, ideally one that uses the real ‘mid-market’ exchange rate – see our money transfer comparison table for the best options.
The overall fees tend to work out at around 85% less than banks’ so if you need to send money to Spain – let’s say, £1500 – you could make a saving of over €70 doing it this way.
Another benefit is being able to accept local currency and maximise your income if you’re renting your place out. And if you pay for the property itself this way, the savings will definitely be something to write home about.
One thing I am confused about is that in the list of money transfer comparison table, transferwise are shown as having no transfer fee. This isn't correct is it? I thought it was about £1 per £300 sent?
It's the only transfer website I've used on that list, but if that one is incorrect, how many others are?
Hi Steve15 - that's a good spot. We're offering money.co.uk customers a free first transfer until the end of September, so that's why the fees are currently set to zero. You are right though, normally we charge £1 for a transfer of up to £300, and a small percentage beyond that amount. Thanks, Joe
Hi Lisa - Caxton are pretty good, but yes they do play around with the exchange rate and make their money that way - so you do pay a charge, but it's hidden in the rate. Our transfers are all made at the real mid-market rate, and then we apply a small transparent service cost. At least you're not transferring with your bank, that's all I can say!