HiFX Guide to reducing the cost of overseas property ownership
January 2011
Four fifths (85%) of overseas property owners say the cost of maintaining their property has gone up in the last 12 months and over a fifth (21%) are struggling to meet the increased costs, according to latest research from currency specialists HiFX.
Over a million Brits currently own a home overseas, with France and Spain being the most popular destinations. However the global economic slowdown has hit homeowners not only at home, but also abroad as the cost of maintaining a property has increased.
Whilst mortgage rates may have gone down for many owners, the overall cost of owning a property overseas (including local taxes, utility bills, maintenance costs etc) has continued to grow and the rising costs of ownership have been magnified by sterling’s depreciation and the continued market nervousness of an impending hung parliament following upcoming General Election Many homeowners are also seeing their rental income from a holiday home hit, as the number of potential tenants decreases with more people opting for ‘stay-cations’ in their home country.
To help the million plus Brits who currently own a home overseas, HiFX has complied a guide to reducing the cost of ownership, including cutting the costs of international money transfers, how to ensure the property is as tax efficient as possible and how to maximise rental opportunities.
1. Protect yourself from currency fluctuation:
According to HiFX, 2 years ago the average overseas home owner transferred £10,000 a year to meet maintenance costs (including overseas mortgage payments) and provide spending money when they visit their second home. However as the pound has taken a beating against all the world’s major currencies, they now have to convert significantly more in order to meet the costs associated with their international property such as maintenance costs, mortgage payments, utility bills and local taxes.
For example, in October 2008, £10,000 would have bought you €12,900. To receive the same amount of Euros today, a Brit has to transfer £10,999, almost £1,000 more.
| Currency Pair | Sterling high in last 2 years | £10,000 would have bought you | Current Exchange Rate | Now Costs | £ difference |
|---|---|---|---|---|---|
| GBP/EUR | 1.299 (10/08) |
EUR 12,990 |
1.181 |
£10,999 |
£999 |
GBP/USD |
2.019 (03/08) |
USD 20,190 |
1.553 |
£13,000 |
£3,000 |
GBP/ZAR |
19.306 (10/08) |
ZAR 193,060 |
10.594 |
£18,223 |
£8,223 |
GBP/TRY (Turkish Lira) |
2.935 (13/10) |
TRY 29,350 |
2.419 |
£12,133 |
£2,133 |
Advice for Brits who are feeling the pinch
With further volatility in the value of sterling predicted in early 2011 as uncertainty around the British economy is expected to continue, Mark Bodega, Director at HiFX recommends international property owners who cannot afford to see the value of sterling decrease any further consider:
- “People making regular currency transfers should set up a Regular Payment Abroad plan with a currency broker that allows you to lock into an exchange rate for up to 12 months ahead so you know know exactly how much is being transferred every month.”
- “A Regular Payments Abroad plan also saves you forking out on commission and transfer fees. Banks typically charge up to £30 as a transfer fee on each and every transaction, up to 2% commission on the amount being transferred and, depending on the destination bank account, you may also be charged a further 0.5% receiving fee by the overseas bank.”
Those who are uneasy about fixing the exchange rate and are more bullish about Sterling’s future or those who are making international transfers on an ad-hoc basis should at the very least shop around for better exchange rates and compare the rates offered by their high street bank with a currency specialist, particularly one which offers an online service for smaller amounts of money.”
HiFX, for example, has launched an innovative Online International Money Transfer service (www.hifx.co.uk/online). The service allows customers to quickly and securely transfer amounts of £250 - £50,000 at rates which beat both the high street banks and other international money transfer specialists such as PayPal and Western Union. The service is also the first to show real time, moving exchange rates. Customers can watch the live rate and choose when to make the transfer themselves and unlike other online transfer methods, there are no hidden charges. The HiFX Online International Money Transfer service offers on average savings of 3% of the amount transferred when compared to high street banks and other international transfer providers.
2. Cash in on rental opportunities
According to the research, almost 70% of holiday home owners are missing out on vital income by not renting out their overseas property**. Almost half of those that do rent it out only do so to friends and family who traditionally pay less than other tenants.
Angela Southall, Marketing Manager from Owners Direct, the UK’s number 1 direct-from-owner property rental site, offers this tip:
- “We always recommend holiday home owners really understand the trends specific to their location. Talk to neighbours, the local economic development office and estate agents about rental rates, which websites work for advertising their holiday home and the seasonality for tourists. If you decide to use a website to advertise your holiday home, put some effort into putting great pictures up and writing an attractive description. Put as much information as you can on your advert, be flexible and ensure that the character of your home is well represented through your advert.
3. Ensure your property is tax efficient
Overseas home owners have to pay ongoing taxes on ownership, such as local taxes or even tax on rental income. This is usually payable in the country where the property is located, but if you are a UK resident, such income also needs to be recalculated into Sterling and is taxable in the UK, regardless of where it is paid, with any appropriate relief given in the UK for taxes paid abroad.
Colin Vickers Director of Blevins Franks, a leading international financial advice group, offers these tips for making sure you are not paying more on tax on your international property than you need to:
- “Each country will tax the income according to its own rules, so sometimes more allowances are available abroad than in the UK or the tax rates abroad may be lower, but the higher tax liability will be due. However, there may be ways of reducing your tax bill, but whatever you do, you only pay tax when you make money. Spending money unnecessarily to save tax can often be a false economy; after all, why spend £100 to save £40?”
- “It is important to make sure that you claim whatever allowances you are entitled to. Make sure you know the rules or employ someone to prepare the returns for you. Trying to do it yourself, if you don’t understand the rules, can be a false economy.”
- People who take advice before buying their property abroad often manage to make their purchase more cost-effective than those who buy without taking advice. This is because advice starts at the beginning, with whose name the property should be in.
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