A question of the house in the sun?

In recent years, the Irish have taken to the foreign property market like ducks to water. Many people, business owners, couples and individuals, are now investing in property as a way to supplement their pension plans and provide for their families.

But, this is no place for the ill informed. If you’re thinking about investing in property abroad, there a few issues you must consider.

You investigate the potential return from the property under three headings:

1. Income after expenses before taxes
2. Capital Gain before tax
3. Tax on income and capital gains

The questions you need to consider are:

1. Will the property produce a positive return compared with other possible investments or options?
2. What is the market rent for the property?
3. What are the costs of maintenance, insurance and estate agent fees?.
4. What is the rate of capital appreciation in the market and future prospects for same?
5. What are the local taxes, notary and stamping charges?

While Ireland does not have rates on residential property, it has modest water and refuse charges.

Many other countries have very significant local charges and property based taxes on top of water and refuse charges. Be sure and check them out.

You may not want to hear it, but you should check the status of the planning permission for your property.

For example, Spain and many other countries now have active policies involving the demolition of property without permission just like Ireland and issuing hefty fines to the guilty parties.

You should be aware of geographic factors, such as flood plains, earthquake zones and other areas prone to natural disasters. Good value for money may be a hint that all is not well.

Your investment horizon or longterm outlook could have implications for under many tax headings. You should consider the longterm effects of:

• Capital Gains Tax,
• Capital Acquisitions Tax and Gift or Inheritance Tax,
• Stamp duty on transfers.

Depending on whether the investment is a short-term or long-term investment, or one that could be passed on to the investor’s children, you should consider your options now and plan for all eventualities.

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There are a few different options of ownership here, each with its own benefits and possible disadvantages. You should consider the benefits and disadvantages of each of the following:

1. Property owned directly by the individual;
2. Property held in the joint names of the individual and his or her spouse,
3. Property held in the joint names of the individual and his or her life partner or business partner;
4. Property held in the joint names of the individual and his or her children;
5. Property owned by a company, which is in turn owned or controlled by the individual (some countries require a non – resident to set up a company before they can purchase a property).

Will you be purchasing the property as a non – resident of the country in which the property is located?

In general, non-residents are taxed abroad on income arising in that particular country. However, one needs to become aware of the local rules in the country of choice.  

Irish residents are taxable on their world income (including foreign rents) in Ireland. The double tax treaty between Ireland and the location country will remove the risk of double taxation. So the effect of the tax treaty, if any, between Ireland and the country in which the property is located, will need to be considered.

Ireland has a tax treaty with most EU countries, the USA, Canada, Australia, New Zealand and South Africa. However, it doesn’t have one with Turkey, Malta or the Ukraine at present.