Maintaining property in Tenerife on the increase
85% of overseas property owners say the cost of maintaining their property has gone up in the last 12 months, so check out this guide on how to reduce the cost of being an overseas property owner.
Over a million Brits currently own a home overseas, with France and Spain being the most popular destinations. However the global economic slowdown has hit homeowners not only at home, but also abroad as the cost of maintaining a property has increased -over a fifth of owners (21%) are struggling to meet the increased costs, according to latest research.
Whilst mortgage rates may have gone down for many owners, the overall cost of owning a property overseas (including local taxes, utility bills, maintenance costs etc) has continued to grow and the rising costs of ownership have been magnified by sterling’s depreciation. Many homeowners are also seeing their rental income from a holiday home hit, as the number of potential tenants decreases with more people opting for ‘stay-cations’ in their home country.
To help the million plus Brits who currently own a home overseas, HiFX has complied a guide to reducing the cost of ownership, including cutting the costs of international money transfers, how to ensure the property is as tax efficient as possible and how to maximise rental opportunities.
1. Protect yourself from currency fluctuation:
Two years ago the average overseas home owner transferred £10,000 a year to meet maintenance costs (including overseas mortgage payments) and provide spending money when they visit their second home. However as the pound has taken a beating against all the world’s major currencies, they now have to convert significantly more in order to meet the costs associated with their international property such as maintenance costs, mortgage payments, utility bills and local taxes.
For example, in October 2008, £10,000 would have bought you €12,900. To receive the same amount of Euros today, a Brit has to transfer £11,896, almost £2,000 more.
Advice for Brits who are feeling the pinch:
People making regular currency transfers should set up a Regular Payment Abroad plan with a currency broker that allows you to lock into an exchange rate for up to 12 months ahead so you know know exactly how much is being transferred every month. A Regular Payments Abroad plan also saves you forking out on commission and transfer fees. Banks typically charge up to £30 as a transfer fee on each and every transaction, up to 2% commission on the amount being transferred and, depending on the destination bank account, you may also be charged a further 0.5% receiving fee by the overseas bank.
Those who are uneasy about fixing the exchange rate and are more bullish about Sterling’s future or those who are making international transfers on an ad-hoc basis should at the very least shop around for better exchange rates and compare the rates offered by their high street bank with a currency specialist, particularly one which offers an online service for smaller amounts of money
2. Cash in on rental opportunities
According to the research, almost 70% of holiday home owners are missing out on vital income by not renting out their overseas property. Almost half of those that do rent it out only do so to friends and family who traditionally pay less than other tenants. Talk to neighbours, the local economic development office and estate agents about rental rates, which websites work for advertising their holiday home and the seasonality for tourists. If you decide to use a website to advertise your holiday home, put some effort into putting great pictures up and writing an attractive description.
3. Ensure your property is tax efficient
Overseas home owners have to pay ongoing taxes on ownership, such as local taxes or even tax on rental income. This is usually payable in the country where the property is located, but if you are a UK resident, such income also needs to be recalculated into Sterling and is taxable in the UK, regardless of where it is paid, with any appropriate relief given in the UK for taxes paid abroad. Each country will tax the income according to its own rules, so sometimes more allowances are available abroad than in the UK or the tax rates abroad may be lower, but the higher tax liability will be due. However, there may be ways of reducing your tax bill, but whatever you do, you only pay tax when you make money. Spending money unnecessarily to save tax can often be a false economy; after all, why spend £100 to save £40? It is important to make sure that you claim whatever allowances you are entitled to. Make sure you know the rules or employ someone to prepare the returns for you. Trying to do it yourself, if you don’t understand the rules, can be a false economy.
People who take advice before buying their property abroad often manage to make their purchase more cost-effective than those who buy without taking advice.
