Overseas property can be an attractive option for those looking to make an investment and earn higher rental yields than buy-to-let property in the UK.
But not only do you get an investment, you get the additional benefit have owning a holiday home which you can visit when it's not being rented out.
Having a holiday home is a dream for many of us, and while it can be a great source of rental income if you let it out, there are many downsides to consider before taking the plunge too.
Here is a list of a few of the pros and cons associated with buying a property abroad:
As with any investment, the idea is to thinking long term when considering an overseas property for investment.
Some property experts or over eager realtor's may try to sell you on new markets they deem to be investment hotspots and it's likely you might be able to find bargains in countries where prices have fallen. But while, it may cost initially cost more to buy in an already established market, the long term benefit may be worth it.
If you're buying a property as an investment to let out when you're not using it then it's important to keep a few things in mind:
Find a property that is in an easily accessible location with good local amenities and in an area popular with tourists.
Make sure to factor in the holiday season in the region — many tourist destinations virtually shut down when it comes to the end of the season. So you may have periods when you're not earning any rent.
Do your research on how much rent other properties that are similar to yours, to get a realistic idea of how much you could earn. If you happen to be buying a property that's already let out regularly, you could ask the current owner about rates and occupancy.
Tax on overseas properties works the same way it would if you'd bought a holiday home in the UK.
If you have several overseas properties, work out the profits you make from all of them as a whole minus expenses.
If you provide furnished accommodation, you may be able to claim capital allowances for investments against your rental income. Any investments made into your property such as improvements are classed as capital expenditure, which can be offset against your capital gains tax (CGT) bill when you sell the property.
You pay income tax on any profits at your normal rate. When working out the UK tax, you normally use the exchange rate when the rent was due.
Although Brexit has been in effect since the start of 2021, because travelling has been at a virtual standstill because of the COVID-19 pandemic, we don’t know the true effect Brexit has had on the travel market. This has caused some Brits to be cautious in purchasing holiday homes in the EU.
The potential effects of Brexit could include:
Fewer flights to the UK from small EU airports, changes in flight paths and price rises.
Difficulties securing a mortgage.
Having to pay more taxes.
Fluctuation in the GBP exchange rate.