With so many of us choosing to retire to sunnier climes, the inevitable result is many of us then ending up inheriting a property abroad. Christopher Nye, editor at Property Guides runs through your options.
Buying a property abroad is something that most are only in a position to do when they’ve paid off their own mortgage, have received a pension lump sum, or perhaps are downsizing. (Indeed, what better way to soften the blow of selling the family home when the kids leave home, than buying somewhere abroad where they can all visit?)
Either way, it tends to be done later in life, with the inevitable consequences a decade or four down the line.
So what should you do when the tragic news of a loved one’s passing is followed up by the pleasure of being left a property?
The conversation should, of course, have started long before that sad day. The onus is on the one more likely to die first to start the conversation about the property. Although your kids may not want to hear it, broach the subject in a matter-of-fact way with something like “Will you want to keep the Spanish home when I’m not around?” and the conversation needn’t be too painful.
Above all, it’s essential to get good legal and financial advice well in advance. Procedures across other nation’s inheritance and tax regimes may be very different, but everything will be easier and less painful if planned for while the owner of the property is alive, not least to disclose their wishes. For example, one can easily see the potential risks of family conflict if siblings who may not get along at the best of times suddenly own a property together.
[sub-head] Death and taxes
Consider such matters as where loved ones are domiciled, and which jurisdiction will have precedence. Or even better, get a lawyer to explain it all and give advice. For example, many popular overseas locations have a system of “forced heirship”, whereby your children, even if grown up, have a financial claim even if not in the will.
A person is considered to be domiciled in the UK if they have lived in the UK for 15 of the past 20 years or has had a permanent home in the UK at any time in the past three years. If the person who dies is domiciled abroad, while inheritance tax is not paid on UK assets it may well be on overseas assets.
If you have paid inheritance tax abroad you generally will not have to pay it when you receive the money in the UK. However if you receive an income from, for example, maintaining the property. abroad for rental income, you will be liable to income tax.
Those who believed that the EU controlled everything may have a shock if they inherit abroad. Procedures for buying and selling property, inheritance and probate procedures and much else do not just vary from country to country but even within countries, as in between England and Scotland. In France, for example, inheritance tax is paid (or not paid) by the individual who receives the inheritance, not by the estate.
For those worried about the probate procedures, having had to follow a complicated system in the UK, the good news is that much of this will be organised by a notary.
[sub-head] Keeping your property
Whether matters were easy to settle when inheriting the property or not, you will understand why it is so important to ensure ownership is well organised, clearly agreed and legal.
Perhaps the first decision, if you opt to keep the property, is whether to keep it entirely for yourself or rent it out. Many choose a combination of the two. Don’t feel you have to keep a rental property like a hotel, removing all the personal knick-knacks or possessions that you’ve come to love there. It is perfectly acceptable to leave your own things in the property, whether locked up in a separate cupboard or even a separate room, or to be used by guests. You might occasionally lose an item but the vast majority of renters will treat it with great respect.
You can choose how “hands on” you wish your involvement in rentals to be. There is always a commercial operator willing to organise your rental, including marketing the property, meeting and greeting and sorting out any problems that arise. Equally, it is rarely hard to find a local, especially in the expat community, to be keyholder and cleaner for a much smaller fee.
Don’t forget that tax will be payable on the income and you may well need to apply for a licence. Local authorities have been clamping down on Airbnb and other informal operators.
If you decide to sell, bear in mind that estate agent fees may be considerably higher than in the UK, such as up to 5% in France.
Most of the processes are the same as in the UK, but do ensure you definitely wish to sell. If you pull out of the sale late on you not only have to repay the buyer’s deposit, but possibly even double it.
When returning funds to the UK, it’s important to be proactive and in control, rather than simply accepting what the agent or notary “does usually”. Take exchange rates, for example. If you transferred the proceeds of an average priced expat property abroad – around €175,000 – to the UK, over the past year you would have received anywhere between £148,000 and £162,000. That difference is entirely down to exchange rate changes.
So what should you do? Firstly, register with a currency company that specialises in property transfers as you will generally get a much better deal than from your high street or overseas bank. When your sale is confirmed, discuss with your currency company the best way to bring the funds back. For example, if the exchange rate is abnormally bad for you at that moment, such as after a severe economic shock (like Brexit or the pandemic) you have the option of waiting for it to improve. On the other hand, if your exchange rate is looking exceptionally good but that may not last, you can lock it in with a forward contract rather than rushing the sale. We recommend Smart Currency Exchange for these kinds of large scale property transaction. Instruct the notary where you wish your funds to be transferred or you could easily be stung for a poor exchange rate and high costs.
Whether you opt to sell or keep your inheritance abroad, you will find much more help, information and an introduction to useful contacts at Property Guides.