Planning for
your place in the sun
Cheap mortgages, favourable exchange rates, low cost flights and a plentiful
supply of relatively cheap foreign property is driving a boom in the sale
of holiday homes, similar to the gold rush we are experiencing in the UK.
"Before signing up for that French cottage or Spanish villa of your dreams,
don't forget that conveyancing problems, taxes and inheritance laws don't
stop at the White Cliffs of Dover," warns Anna Bowes of Chase De Vere Private
Clients.
Finding a reliable local solicitor to handle the conveyancing is just as
crucial as for UK property purchase, if you want to avoid problems with planning
permission, rights of access or existing charges on the property.
In Spain, a vendor's debts pass to the new property owner, so it is essential
that your solicitor verifies that your vendor is not leaving any charges
on the property.
Another pernicious Spanish law enables local authorities to confiscate your
property if the land on which your property is built is needed for essential
local amenities such as a road or sewage works. Check that there aren't any
future developments which might affect your ownership. Thereafter, all the
normal caveats of property purchase apply, including ensuring that you have
good title and will own what you think you are paying for.
One UK investor who bought a property in Spain found to his astonishment
that the local municipality owned half his swimming pool - a situation which
cost him thousands of pounds to rectify.
Next you will need to decide whether to borrow in Sterling or euros. Many
people choose to draw equity from their UK properties rather having to take
out a new mortgage. This may be the only way if you are self employed because
few continental lenders allow self certification of income.
The alternative is to take a euro mortgage, but unless you are paid in euros
or expect to receive a rental income in euros, remember the exchange rate
risk which may arise if sterling were to weaken.
Even though interest rates are much lower in euro-land (ECB base rate is
currently 2% compared to the UK's 4.25%), the margin on Euro mortgages is
much wider and the market less competitive, so the mortgage rate differential
is not as large as you might expect.
A growing number of UK and Irish lending institutions offer euro mortgages,
so it is worth shopping around for the best deal.
The cost of buying and selling property in euro-land tends to be much higher
than in the UK - in France and Spain you are normally advised to allow 10%
of the property's value to cover the extra costs. Also, be sure you know
what the ongoing costs of maintaining the property are likely to be - service
charges, community and local rates can be just as expensive as in the UK.
If you choose to rent out your holiday home, check the tax position on rental
income. It may be possible to offset the mortgage interest against the tax
on this income, but you need specialist tax advice, as some countries have
double taxation agreements with the UK.
In Spain, purchasers are usually advised to write a Spanish will as the Spanish
authorities will not recognise an English will for inheritance purposes.
This means you should ensure that your UK will dovetails with your Spanish
will so that the two don't contradict each other.
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Please note that articles on this site do not constitute regulated
financial advice, which recommends a course of action based upon the specifics
of your personal circumstances. The articles are intended to provide general
personal financial information. We urge you to consult an Independent Financial
Adviser (IFA) before making any important decisions about your finances.
Call 0800 085 3250 for details of IFAs in your local area. Any statement
regarding financial services products and tax liability is based on legislation
and tax practices as at 1 January 2004, which is, of course, subject to
change.The value of any tax benefits or reliefs depends upon the individual
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