Retiring abroad remains a goal for many retirees but they will need to consider the possible tax consequences thoroughly. Geoffrey Shindler outlines some of the issues retirees need to bear in mind
Buying foreign property abroad, often under the influence of the sun, a relaxed atmosphere and a drink or two can be a delight that, alas, can quickly turn into a nightmare. It is important that those looking to retire abroad are not seduced by the sunshine but look at the cold hard economic realities.
The issues that need to be highlighted are ownership, succession and taxation. Just because we in England deal with these three items in a particular way does not mean every other country has the same rules. Indeed, it would probably be fair to say no country has the same rules on any of these topics.
It is important to deal with these issues when the property is being acquired. When trying to deal with the property subsequently, by will, clients may find that it would have been easier to have dealt with the issues when the property was first bought.
Certainly clients should make sure they ask the lawyer acting on their behalf when the property is being bought for their advice relating to initial ownership, subsequent succession and, ultimately, inheritance tax.
We start from the basis that an Englishman's home is his castle and that he can leave the castle to anyone he wants. By and large this is true; and by and large on the continent of Europe exactly the opposite is true. The legal systems of the UK and the rest of Europe are very much like oil and water; they do not mix easily, and in some cases not at all.
Clients will need to check with their lawyer what happens on their death - can they make a will that disposes of that property in the way the client wants to deal with it? Are there some rules of the country in which the property is situated which determine the devolution of that property irrespective of the client's wishes? If that is the case then the client might be tempted not to invest their money in the property because they cannot deal with the investment as they want to do so. A hotel might be a better option!
Taxation varies from country to country and, as we know only too well, from year to year. What is a benign tax regime when the property is purchased might be a very different regime on the client's death. You need to keep up-to-date with the changes in the inheritance tax law of the country in which you buy the property. Yet more problems!
Life was never meant to be simple and that applies as much to holiday properties in foreign countries as it does to anything else. If clients want to buy a house abroad remember that, like any other asset they own, it does not look after itself and they need to be on top of all the issues all of the time. One of the issues is that of language. We English are notoriously bad at speaking foreign languages and we expect everybody else to speak English perfectly. Clients need to be very careful when someone is talking to them in English just in case the nuances of their technical expressions lead them to one meaning when in fact they mean something entirely the opposite.
Many people struggle to cope with their own English legal system so foreign legal systems are even more difficult to understand. Nevertheless if your clients invest their money in property, they will need to look after it - it is hard work at times but hopefully the sunshine will be sufficient reward.
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