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02 September, 2016
The effects of Brexit are still unknown but there is no doubt that uncertainty has set in. However, for those who are looking to invest in European Property it is important that they take a considered approach when dealing with the potential problems that could lie ahead.
For those people who own or are looking to overseas property investments in an EU country are the ones who are going to be concerned about the outcome of Brexit which is completely understandable.
Despite there being mixed feelings about the outcome, it is unlikely that changes will take place in the immediate future and for those who do purchase property abroad; they will still have to pay the same taxes and abide by the same laws.
The UK has a number of tax treaties in place, although many jurisdictions will implement their own charges on the purchase of residential property while the UK will still look to impose tax charges on it also. Therefore, if someone purchases a rental property in Spain they will be taxed in the UK and in Spain on their rental income.
This kind of double taxation can also come into effect when it comes to selling the property and should there be a profit the seller will also have to pay capital gains tax in the UK and the European jurisdiction.
Weak pound will cause problems
Choosing to purchase a European property will be a tough experience as a result of the weak pound. If it continues to weaken it will mean that a property located in Europe will cost more. This will also cause problems for those who also own a property as they could find themselves with a large capital gains tax bill.
If the Euro value of the property has not increased then the owner will not be liable to any capital gains tax but there could be a significant amount of UK capital gain, especially if Sterling remains at its current value against the Euro.
Should Sterling recover, it could lead to a loss in capital, regardless of whether the value of the property has remained constant.
There are a number of hidden costs that come with owning a property abroad. Purchasers could find themselves paying local wealth taxes and these can be found throughout Europe. They can cause problems for buyers as many do not factor these costs into their budget.
Therefore, being lured in to this is something that is going to happen but it can be made worse if the tax has to be paid using the weak pound.
As the UK prepares itself for its final goodbye to the EU, there is no need to panic just yet as it is unlikely that the decision will immediately affect individuals although it has increased uncertainty and risks.
However, the changes seen following Brexit could suggest that there may be difficult times ahead but it is important for buyers who are purchasing in Europe to consider all financial implications to prevent problems.
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