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Buying Property in Spain

By Richard Rose - Topics: mortgages, Property, Spain, Uncategorised
This article is published on: 6th August 2014

06.08.14

Investors are returning to the Spanish property market in increasing numbers following the bursting of the property bubble and financial crisis of 2008/2009. Property values have fallen by as much as 50 percent and beyond in some areas, creating pain for those who bought at the top of the market, but opportunity for new investors.

It’s not just individual investors who are returning to the market, but also large institutional property investment firms. They typically are purchasing tranches from the “bad bank,” set up by the Spanish government to relieve pressure from its banks, and also directly from banks and other institutions.

Like any investment, we would much rather purchase an asset at the bottom of its cycle than its peak. Easier said than done. I would challenge anyone who purports to be able to pick the top and bottom of any market; however, there are several pertinent points to consider when looking at the present value of the Spanish property market. The market has fallen considerably, Spain’s economic outlook appears to be slowly improving, tourism in many areas actually has picked up over recent years and demand from international individual and institutional investors is increasing.

Buying property in Spain, particularly around the yachting centers of Barcelona and Palma de Mallorca, has historically been popular and is becoming popular again, but the cost of purchasing property varies from region to region. In Catalonia, the transfer tax for the purchase of a secondhand dwelling has increased to 10 percent of the purchase price as regions look to increase their tax revenue. When you include notary fees, registration fees, property valuation costs, etc., the purchase costs can be estimated at 13 percent of the purchase price.

Borrowing in Spain, despite what you may hear, is still possible for yacht crew. Most banks will lend a maximum 60 percent of the property’s value to non residents, and a few will now lend up to 70 percent, dependent on the applicant’s financial circumstances.

Assuming the highest loan to value of 70 percent and purchase costs of approximately 13 percent, investors would need equity of at least 43 percent of the purchase price to complete the acquisition. For Spanish residents, the loan to value figure generally increases to 80 percent, again dependent on a person’s circumstances. If the property is subsequently rented, the income is taxed at marginal rates. Ongoing local taxes also apply, although they are relatively low in most municipalities; capital gains tax and inheritance tax may also be levied.

It’s recommended that professional advice be sought before making any property investment. A mortgage broker should be able to source the best terms and conditions for any financing that you may need.

Buying property in the UK

By Peter Brooke - Topics: Investments, mortgages, Property, Uncategorised
This article is published on: 21st July 2014

21.07.14

Many crew like the idea of investing in UK residential real estate, not just Brits. The strong legal system, common language, lending availability (although this has changed somewhat) and large population, make property ownership in the UK an attractive option for growth and income investors alike.

The obvious risks are currency, liquidity and “arms-length management.” If you don’t earn in sterling, then owning a large sterling asset can mean large swings in value due to exchange rate changes. Annual liabilities can change dramatically too, so consider this.

Like property everywhere, it’s a highly illiquid investment. If you want to sell quickly, you may lose a lot of value, and it may still take months to get your money out. Although it’s an excellent part of a portfolio, property needs to be just that and not the entire dossier.

Managing a property (or portfolio of them) in the UK when you are based on a yacht in the Med or Caribbean can be very difficult unless you employ a good agent to manage any works or changes in tenants. This cost needs to be built into the figures as to whether or not to buy.

Having said that, if the rental yield is good (and therefore someone else is going to pay off your mortgage or give you a good income), then UK property can be an excellent choice, especially if you know the market. Big student towns still seem to offer excellent yield opportunities, but management costs tend to be high. The UK market is steady in terms of growth potential, but the Southeast and London are described as a “bubble” risk.

Buying property in the UK:
Be aware of the different types of ownership (freehold and leasehold) when researching property; they can have far-reaching consequences and costs. There will be Stamp Duty Land Tax (SDLT) to pay on the purchase, which is on a sliding scale from zero to seven percent for properties more than £2 million. Be aware of the brackets, as a  slightly lower offer could save you thousands in stamp duty. On top of this, you will pay some legal fees for conveyance advice and services.

Borrowing in the UK:
It’s still possible for yacht crew to borrow, but it’s getting a little harder as banks tighten their rules, and the UK government may further legislation to tighten this more. Banks prefer that the property be rented out, as the income can help secure the loan. Interest rates for non-residents, especially yacht crew, also tend to be higher than those for residents. Generally, crew can borrow around 75 percent of the purchase price, and will have to fund the SDLT and legal fees as well. Any rental profit is taxable in the UK, whether you are resident or not, as is capital gains tax and inheritance tax.

There are many considerations when buying property, so good, qualified advice should be sought, especially if it’s part of an overall plan; a mortgage broker should also be able to find the best terms for you.

Rental Income from properties overseas and how to declare it in Italy

By Gareth Horsfall - Topics: Italy, Property, Residency, tax advice, taxation of rental property, UK property
This article is published on: 25th January 2014

25.01.14

One of the questions I am asked regularly is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian rental income?

I would like to dispel any myth and confirm that you do have to pay Italian tax on the profit from any rental income on properties held overseas as a resident in Italy. (if it was really ever in doubt. Out of interest the arrangement is reciprocal, and any if you were resident in another country with rental property in Italy then it need to be declared as well).

The best way to organise your rental income
The law for Italian tax residents states clearly that the net profit (after expenses) from property overseas, must be declared in the Italian end of year tax return. The net profit is then assessed as income, added to the rest of your income for the year and tax paid at your highest rate of income tax (that could be as high as 43%).

Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable income (whatever you choose to call it) value of the property.

If tax has been applied in the country of origin, it is the law in Italy to declare the funds here as well and so annual declarations need to be made.

As an aside, it is relevant to note that in 2012 I received a deluge of enquiries from people who had been contacted by the Guardia di Finanza who had obtained information from HMRC (UK tax authorities) about people who have/had rental properties in the UK, were legitimately declaring tax in the UK, but who had failed to then declare that income in Italy. In some cases they were fined substantial amounts for merely this simple mistake.

However, all is not lost because there is a way to limit your Italian tax liabilties. If the property income is declared in the country of origin and all the costs are deducted from the income, still within the country of origin, then ONLY the net profit needs to be declared in Italy. In some cases it might also be necessary to declare the rental income in the country of origin even when that country no longer requires you to, for example the UK. If you have rental income under the basic allowance of approx the first GBP 10500 of income and therefore the UK no longer requires a declaration, it may still be wise to insist on making a declaration because the UK allow for multiple expense offsets for tax purposes. By following this process you are showing the Italian authorities your expense declarations and therefore it is acceptable for Italian tax purposes.

You may in some cases be able to reduce your net profit to zero.

To clarify, any rental income from properties held overseas must be declared in Italy, for Italian tax residents. This is the NET income (after expenses). And this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.

Depending on why you are investing in property overseas the advantages/disadvantages can work in 2 ways: .

  1. If you have high expenses for the property then it can work in your favour as a capital appreciation investment. (assuming the value of the property goes up). Less income means less tax.
  2. The downside of this arrangement is that someone with low expenses and high net income (maybe living from the income in retirement) will be assesed at their income tax rates in Italy (IRPEF) which could go as high as 43%

If you are concerned about your tax situation in Italy and would like an initial meeting to assess your liability then we are here to help. In addition, there might be other more tax efficient and less costly ways to produce income and grow your money. If you are interested in exploring these then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell 333 6492356

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