Tips and traps of buying overseas
At some stage in our lives, many of us dream of owning a cottage in the south of France or a hacienda on the Spanish Riviera, maybe even a log cabin up in the Swiss mountains. Others may be tempted to buy an overseas investment property, particularly when our own housing market is stagnant and there’s no growth potential.
Buy a property in Spain and receive an honorary residency permit
Some countries enthusiastically welcome overseas property buyers, with Spain and Portugal even offering residency permit enticements to foreigners who buy a property worth over €500,000.
This is because housing demand in many European and Asian countries is flat as their populations decline. Not only are fewer babies being born, young people are emigrating.
While the demand for aged care accommodation is growing, the declining populations in many countries is creating a growing surplus of family homes. Hence the Spanish government offers incentives for families to move there and buy a home.
You can’t buy a property in Switzerland unless you are a resident
The opposite applies in Switzerland, where the government is charged with discouraging foreign immigration and restricts property ownership to those people who already have residency permits. But before you jump into foreign home ownership, it is also important for you to know the tax and legal systems that apply, as they could be very different from ours.
Beware of wealth, property, value added and inheritance taxes
For example, if you rent out the property during your absence, both the local country and Australia may tax your income from rent, unless Australia has an arrangement with the other country which takes the tax you have paid overseas on rental income into account.
Most countries have a capital gains tax, plus an ongoing property tax similar to our state-based land taxes, but some also have property related taxes that do not exist in Australia.
These include value added tax, which is applied to improvements made by the owner, wealth tax applied to properties worth more than certain amounts and inheritance tax which kicks in when the property passes to beneficiaries.
In some countries, inheritance tax is low or non-existent when properties are left to spouses or children, but become onerous when estates are left to others, or if immediate family are bypassed in a will.
And on the subject of inheritance, it is worth noting that some countries oblige you to leave your property to your next of kin in accordance with the established practice of the country.
This means that your lover or mistress, if you have one in France, is entitled to a share of your French estate when you pass away. Could be quite a shock to the family back home!