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Buying property abroad – a guide
When buying property abroad, it can be hard to know where to start, from considering locations to deciding how to fund your purchase
Buying property abroad continues to be popular with Britons. According to the English Housing Survey, 2.1 million households reported having at least one second property, 40% of which were outside the UK.
Whether you are buying a property abroad to rent out or starting a new life overseas, there are several important factors to consider when it comes to overseas property investment, not least in the wake of Brexit if your chosen destination is within the European Union.
In addition to where and why you are looking to invest, you will need to research the most cost-effective way of financing your purchase – whether you are a cash buyer or require a mortgage – plus any tax implications, restrictions or other risks that investing in property abroad may hold. So, if you're considering buying property abroad, this article should help you get started with securing your place in the sun.
Where is the best place to buy a property abroad?
The best place to buy a property abroad depends on your needs. You need to ask if the destination is right for you.
Are you after a slower pace of life? Do you need a family-friendly location? Perhaps you're looking for amenities like a swimming pool, restaurants, or entertainment. It would help if you also considered when you think you will use your property, as some holiday hotspots shut down in the off-season.
According to the property portal A Place in the Sun, Spain is the most sought-after location for Brits to buy abroad, with France, Portugal, Florida and Cyprus completing the top five. Considering its popularity with UK expats, Europe is a great place to start when looking for cheap property abroad.
How much does buying property abroad cost?
Cost is also often the key factor when investing in property abroad. Property prices outside the UK are often lower, making buying property abroad appealing. When looking at the most popular European destinations, Greece and Cyprus can offer some of the cheapest options. Further afield, Turkey offers very competitive prices, with the average cost per square foot between 65 and 75% less expensive than the UK, depending on whether you buy in the city centre or not.
Do you pay Stamp Duty if you buy a property abroad?
You will have to pay extra Stamp Duty on all second homes, even if the property is abroad.
If owning more than one property is temporary, you will still have to pay the extra rate. However, how much you pay depends on your current property's value, so again, it is worth doing your research. Remember that Stamp Duty will apply even if you own a share in a property.
What about Capital Gains?
You also need to consider Capital Gains Tax on overseas property. Capital Gains Tax is paid when a UK resident 'disposes of' an overseas property and makes a gain on the sale.
How to calculate Capital Gains Tax on overseas property
To calculate your total taxable gains, you need to calculate the gain for each asset you disposed of in the tax year. Then, add together the gains from each asset and deduct any allowable losses.
There are specific rules if you're a UK resident but not domiciled. For a complete calculation, refer to the government website on Capital Gains Tax.
Has buying property abroad changed since Brexit?
Since Brexit was finalised in 2021, there have been some changes to what you may have to consider if you are buying property abroad as a British citizen. These primarily affect those who are looking to purchase property in Europe.
Ultimately, you still have the right to buy property in Europe after Brexit. In most cases, there are also no additional costs – purchase tax and property registry fees are usually the same, regardless of your nationality. However, if you plan to rent your property out, you may have to pay a higher tax rate on this income as a non-EU resident.
For example, in Spain, EU residents pay 19% on income (e.g., rental), whereas non-EU residents (including British nationals) pay 24%.
The GBP-EUR exchange rate dropped following the 2016 Brexit vote, so European property may also be slightly more expensive than before.
How do I finance an overseas property purchase?
If you are buying a property overseas, you might finance it in several ways.
For example, you can buy the property outright if you have a lump sum pension or savings to invest.
Alternatively, you can borrow part of the cost with a mortgage, so consider the costs and benefits of taking out a mortgage for overseas property in the UK or with an overseas provider.
Taking out a mortgage for overseas property
Unless you are a cash buyer, you will probably need to find the best mortgage option for your needs when buying a property abroad.
As many UK high-street banks offer an international mortgage service, you might only need to go as far as your current bank, and you may appreciate using a familiar provider. However, you would be dealing with the foreign arm of the bank. Because they often provide mortgages only in countries with offices, your options may be limited, especially if you look further afield than Europe.
Another popular option is to use a specialist overseas mortgage broker, who can typically provide personalised information, including a range of lawyers and real estate agents in your chosen country. Compared with UK providers, European mortgage brokers often offer much better rates, so borrowing abroad could save you money. However, factoring in exchange rate fluctuations is essential, as they may affect your repayments. Speaking to a currency specialist to understand the options available to you can help you mitigate the risk.
Securing an exchange rate
Timing is crucial when it comes to getting the best exchange rate. Foreign exchange markets are unpredictable, so having a measure of control over the rate you receive can make your money go much further.
Protecting yourself from risk
The time between your deposit and the final amount can be particularly worrying because exchange rates can change a lot. However, there are ways to protect yourself when buying property in another country, such as using foreign exchange tools.
A currency expert can assess your unique circumstances, time frame, and financial situation. They can also assist you in the execution of your payments and provide insights into the current state of the currency market.
By setting up an account, you can receive regular updates on exchange rates, giving you a better understanding of the market. Rest assured, this service is free of charge, and you are under no obligation to maintain the account if you do not find a property that suits your needs.
You can even lock in an exchange rate beforehand if your happy with the rate using a forward contract*. This keeps the price in your own currency the same, even if exchange rate changes. Or you can watch for a specific rate to try and get the most out of your money in the country you're buying property using a market order.
With expertise and a range of currency tools to help you buy a retirement villa, a family home in the sun, or a seaside apartment when you need to escape the rat race, Moneycorp can be your trusted foreign exchange partner for buying a property overseas.
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* A forward contract may require a deposit
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
Be aware of currency risk. None of the information contained in this article constitutes, nor should be construed as financial advice. Moneycorp is a trading name of TTT Moneycorp Limited, which is authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 (Reference number 308919) for the provision of payment services. All customer funds are safeguarded in segregated client bank accounts. Date of approval 08/05/2024.
Information correct at date of publication.