Tax Effecient - Overseas Property

No longer are the regular luxury feaures of infinity pools, stunning façades and rolling acres enough to lure a potential buyer. 'Tax' and what impact it will have on their investment is becomingly increasingly important as a deciding factor on their whether the sale is complete. Many investors are sold if the magic phrases “incurs no capital gains tax” or “no inheritance tax liabilities” are heard.

Globalisation means that investors are combing the world for the very best properties in terms of lifestyle, value and, above all, tax, as well as an apartment or house with good growth potential.

“With real estate, as with all investment classes, there are a number of factors that will influence investment performance,” says Philip Munro, a solicitor at Withers, an international law firm with expertise on the world’s most alluring places to buy in terms of tax. “But a very important element of the overall investment return will be the tax efficiency of the investment and the transactional costs involved.”

He cites Britain. “UK real estate can be a very attractive investment market from a tax perspective. For non-resident investors not trading in properties, the UK is favourable because capital gains will not be taxed. In not taxing real estate gains realised by non-residents, the UK is relatively unusual,” says Munro. “Rental income will be subject to income tax even in the hands of a non-resident but it is possible to minimise tax on rental income through leveraging purchases and by deducting costs associated with the property from this tax.

“New Zealand might be far away but people in the UK and Ireland want to buy there for reasons of lifestyle, future investment and, of course, the tax advantages,” says Colm Murphy, director of marketing and business at Property Tax International.

Peter Moore, a 35-year-old Irish doctor, is one of a growing number of individuals buying down under. He fell in love with a detached house near Hastings on the east coast of New Zealand’s North Island in 2008 and bought it for NZ$220,000 (£100,000). Moore liked the house for its big garden and views and the fact that it was at a far better price than anything he had seen in Ireland.

It is very important to understand the tax implications when buying or selling a property both in the coutnry where you intend to purchase and how that purchase/ sale will impact your tax position in your resident tax country.

“Even if tax rates are low for foreign investors, if a gain has been made the individual will have to let their country of residence know and they could be liable for tax,” says Murphy.

“In some cases there could be tax levied from both countries, unless there are tax treaties in place. A lot of people declare the tax in their home country but not in the country in which they have bought. But this is no excuse and there are heavy penalties that could erode any money made from the investment.”

The choice of global property narrows a lot when tax is taken into account. On the other hand, the result is an alluring home with equally alluring investment potential