Over recent years, a lot of people have purchased property abroad as well as at home as a way to supplement their pension plans and provide for their families. As these plans have gone badly astry in recent times, many people, business owners, couples and individuals, are now suffering very badly from negative equity due to loss of value in their investments.
While we are not in a position to help you recover your losses, we can help in mitigating the pain a little bit.
Losses that are realised can be set off against profits on disposal of any other assets that are taxable under Capital Gains Tax. If there are no taxable gains in the current year, the losses can be carried forward to be set off against future gains for tax purposes.
The property market, at home or abroad, is no place for the ill informed. If you’re thinking about bargains that can now be had investing in property anywhere, there a few issues you must consider.
In view of the collapse of the rental income market, you must investigate the potential return from the property under three headings:
- Income after expenses before taxes
- Capital Gain before tax
- Tax on income and capital gains
The questions you need to consider are:
- Will the property produce a positive return compared with other possible investments or options?
- What is the market rent for the property?
- What are the costs of maintenance, insurance and estate agent fees?.
- What is the rate of capital appreciation in the market and future prospects for same?
- What are the local taxes, notary and stamping charges?
In Ireland, the government has successfully introduced a tax on second homes that fall under the definition of residential property which is expected to increase in future years. Also water and refuse charges are set to increase further in future years also.
Rates are charged on commercial properties in Ireland whilst residential properties are exempt.
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. Most European 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.
Need advice with the tax issues, contact us at tax@fixmytax.com
