Buying a property abroad has always been considered as a good long term investment by the Brits, especially because of the more affordable terms offered to them overseas than those at home. In fact, there are close to a million UK nationals who enjoy the comforts of a second home, whether it is adjacent to an exotic beach or a golf course in a foreign land.
A key benefit for an investment in property overseas for a UK resident is that you need to pay a lower amount upfront as initial deposits in many foreign countries are lower than those in the UK. Another positive part of the purchase is that it could turn out to be a good source of rental income, paying much over the standard letting out rates in the UK, for the period their overseas property is lying idle.
Moreover, taxes on the investment overseas works out to be the same as if you purchased a holiday home in the UK. If you are renting out furnished accommodation you can claim a capital allowance for the amount invested on it, which ultimately will offset the tax on your capital gains amount should you decide to sell off the property. You pay normal rates of income tax on any profit you make while the total UK tax figure can be derived by using the exchange rate when the rent was due.
The post-Brexit effect
Since travel has been at a virtual standstill due to the coronavirus pandemic, it is still not clear how Brexit will impact UK buyers of overseas property in 2021. Second home owners, despite protection levels in place, fear an increase in taxes for British, or non EU owners by some EU countries. The earlier freedom of visiting their property as long and as often they want now stands limited to 90 days in a 180 day window in a Schengen region, as Brits are now considered non-EU residents.
This change in regulation will be a harsh reality for the second home owner, who previously had the unlimited option of spending time either in their UK or EU home at will. With Brexit contemplating increase in stamp duty, property purchases in countries like France or Spain will certainly become costly.
So with recession, travel restrictions and almost every country being shut down, would this be the worst time for a Britisher to invest in property abroad? Not necessarily if you consider these factors. Most of the popular choice destinations took urgent measures and are already coming out of the effects of the pandemic. It is estimated that by summer they could be virtually back in business.
Despite the uncertain times caused by the coronavirus and the departure of the UK from the European Union, the overseas property market is witnessing no signs of abating. Brits have not been deterred from making property investments at all. This is because the property rates are going to remain down, but not for long, as they have already hit rock-bottom in countries such as Greece and Italy. Also most estate agents are working full time again and an investor can research the property online or with virtual viewing and strike a deal without even having to fly there.
Those who wish to capitalize on this dip in rates of property will have to get their act together quickly. This is because as the Covid pandemic subsides, the prices are likely to creep up towards the latter part of 2021 as second home buyers start realising that the only impact of Brexit may just be the cost of travel insurance.
Good news for overseas property investors
With the advent of coronavirus pandemic coupled with continued frustrations due to Brexit, most bank analysts have predicted that the British pound will continue to remain under pressure in 2021. As the UK continues to suffer the effects of the biggest economic recession as compared to other major economies, the banks are trying to assess how long the recession may last, as it will directly affect the value of the GBP.
Having said that, there is nothing to despair about as the US dollar is still much weaker than the British pound, which acts as a prop for the exchange rate of the currency pair. It is interesting to note here, that there are relatively few currencies other than the pound sterling which are worth more than the US dollar. Since the dollar is expected to remain weak in 2021 by banks, it should be enough to prevent a weaker British Pound currency.
Staying on top of the foreign exchange rate
Once you have decided to invest in a second home you should wait for the right time to transfer money for your property. It is important to get a grasp about online money transfers before committing the buyer. This is because fluctuating exchange rates are a constant headache for remitters to send money overseas.The timing of your money transfer than becomes essential to maximise your return and ensure that the recipient gets the best possible amount.
Before going to a foreign exchange provider, do some research and get a quote from a bank first. This rate will then be a benchmark in searching for a better exchange rate. Ensure that the money transfer company you choose gives the best exchange rate as even a small deviation on a huge amount will make a big difference on the amount received.
Consider transferring the amount in one go as the more you send, the better exchange rate you will get. In some cases the transfer fees may even be waived. There are plenty of efficient money transfer companies in the UK who understand the needs of second home buyers when sending money from the UK to either Europe or anywhere else.
Since the Covid-19 pandemic appears to be dwindling, the pound is bound to go on the rise. With the uncertainty over Brexit, more or less resolved, buying estate abroad is a much more lucrative proposition in 2021 than it was last year.