Buy-to-let investors now have one eye on overseas markets

Soaring UK house prices, the recent hike in stamp duty for buy-to-let investors and now the EU referendum are creating renewed interest in overseas property, according to a UK-based agent.

Growing concerns about the impact that a Brexit will have on residential property values and yields in the UK is encouraging more UK investors to consider buying property abroad, according to Matthew Lavin of Benoit Properties International, based in Manchester. 

Lavin believes that the growth in interest in foreign property reflects the fact that a growing number of buy-to-let investors in the UK are not just looking to avoid the extra 3% stamp duty surcharge introduced in April, but also secure better value for money homes offering higher rental returns, as part of a more diversified property portfolio. 

He commented: “We could see [12 months ago] that trends would change and that overseas property would become attractive again. 

“While we do have selected properties in northern cities like Manchester and Leeds, the range of global options allows our clients the opportunity to diversify their portfolio should they feel it advantageous. Certainly at present we are seeing a big increase in the overseas markets.”

Separate research conducted last month by estate agent PropertyLetByUs.com found that 23% of UK landlords are genuinely considering purchasing property overseas in order to pay less purchase tax and secure a better return on their investment.

France was named as the number one overseas location for investing in property, for one in five landlords (23%). Spain came a close second (18%) followed by Italy (11%), Bulgaria (3%) and Germany (1%).

UK property investors seeking lucrative buy-to-let investments may wish to consider investing in these European property hotspots. 

It is imperative that landlords thinking of investing in property abroad get to grips with the different laws and taxes surrounding property ownership, according to Jane Morris, managing director of PropertyLetByUs.com.

She commented: “Each country has different tax laws relating to property and they can change quickly, with little warning. For example, in 2012 the French government imposed a 15.5% social charge on capital gains from the sale of second homes or rental income – a measure which was estimated to bring in €250m [£193.4m] a year. Tax on rental income rose overnight, from 20% to 35.5%, while capital gains tax on property sales rose from 19% to 34.5%.

“These new tax measures hit overseas investors hard and meant that for example, that a British couple who bought a French property for €200,000 [£154,000] 20 years ago and were selling it for €750,000 [£580,000], they would have to pay almost €60,000 [£46,400] in social charges, on top of the existing capital gains tax. They received no credit against their UK tax bill for this amount.

“This onerous tax measure overturned in 2015 by the European Union's top court, who deemed it illegal and ordered the French government to reimburse tens of millions of euros to British and other EU non-resident owners, who rented or sold their properties in the past two to three years.

“Clearly, overseas property taxation can be more costly than the UK, despite often much lower property prices.  It is important that landlords take into account potential tax hikes and don’t get sucked into all the marketing hype that surrounds overseas property investment. Property experts will often highlight new markets they appear to be investment hotspots and you may be able to find bargains in countries where prices have fallen dramatically, but it's often wiser to buy in more established markets.” 

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