Buying a Property Overseas

IN ASSOCIATION WITH BLEVINS FRANKS

FACILITATED BY RICHARD BERTIN, MEMBER OF THE ICAEW

PERSONAL FINANCIAL PLANNING ADVISORY GROUP

© ICAEW 2018

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POLLING QUESTION – why have you joined this webinar?

© ICAEW 2018

• For personal interest

• For advice when advising clients

• Both

Do you own a property in OR are you looking to buy in:

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• France

• Spain

• Portugal

• Multiple

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Today’s speaker

JASON PORTER

BUSINESS DEVELOPMENT DIRECTOR

BLEVINS FRANKS

Overseas Property:Matters to Consider

When Buying an Overseas Home

Jason Porter Director | Blevins Franks. London

Agenda

Blevins Franks…Who we are, what we do

A Second Home… Don’t Forget the Foreign Tax Factor

The Inbetweeners… Trusts & Companies under the spotlight (again)

Brexit…how long can I spend in the EU?

Closing Comments

Blevins FranksWho we are and What we do

Who are Blevins Franks?

The leading international tax and wealth management

advisers to UK nationals living in Europe

Blevins Franks Group

Advising clients for over 40 years7 countries

22 Offices43 Partners and Private Client Managers

200+ Employees5,100 Families

€2.5 billion Funds Under Advice.

Blevins Franks Group OFFICES IN EUROPE

…tax driven

financial planning and wealth management advice

What do we do?

Comprehensive Financial Planning

Cross-BorderTax Planning

Investment Advice

Estate Planning

Pensions Advice and Planning

Blevins Franks Specialist Advisers

Deep understanding of UK Nationals living in France, Spain, Portugal, Cyprus and Malta

Cross-border expertise

Based locally in the country where our clients live

Qualified and Regulated – UK & EU

A Second Home…Don’t Forget the

Foreign Tax Factor

A Second Home…

Two main scenarios –

Buying a holiday home

Moving abroad whilst retaining a UK home

Buying a holiday home

A Second Home…Buying a Holiday Home

Simplest scenario

Subsequent sale at a profit - CGT liability in the UK, and in the country where the property is located

DTT – allows tax paid overseas to be set off against the UK tax liability

A Holiday Home…France Spain Portugal

Tax Rate 19% 19% 28%

Surcharge 2% - 6%

Social Charges 7.5% (EEA)17.2% (Non-EEA)

Reductions Taper relief on tax and social charges.

Eliminated at 22 and 30 years respectively

Option - tax as Portugal res. 50% gain, and

inflation relief after 2 years. Add to income.

Moving abroad whilst retaining a

UK home

Moving abroad whilst retaining a UK home Common for UK expatriates to retain their UK home when

they move overseas…

A fall back option

To rent out

Retaining a foothold in the UK property market

But now liable to new jurisdictions tax rules, reliefs and exemptions on the eventual sale of the UK home

Can be completely different to those of the UK.

Retaining UK main homeFrance… Exempt provided it is your habitual/actual residence at time of

sale

‘All-or-nothing’ relief – just main home at point of sale

BUT - leave property before sale, and could lose relief entirely, even though may have been your main home for many years

There is no ‘time-apportionment’ for periods of occupation

An exemption of up to one year can apply year from the date the main home is vacated by occupant

Taxpayer must show he has done his best to sell the house

Retaining UK main homeSpain… Main residence relief on sale of UK property if:

You lived in the property for a continuous period of at least 3 years

You buy new main home within a period of 2 years before/after sale

Must live in the new property for minimum of 3 years

Full proceeds are re-invested in new main home in Spain or EEA

Partial reinvestment – partial CGT liability

Fall foul of any of these exclusions and potentially whole UK gain is taxable in Spain!

Retaining UK main homeSpain…Over 65 years -

No requirement to reinvest whole or part of sale proceeds

But – must be Spanish resident at point of sale

Would not exempt Spanish home after exiting Spain

Savings Income & Capita Gains Rate

Up to €6,000 19%

€6,000 to €50,000 21%

Over €50,000 23%

Retaining UK main homePortugal…

If Non-Habitual Residence (NHR) regime applies…

Will need to hold NHR certification, and sale of UK property during first 10 years of residence in Portugal

Under NHR, gain is exempt in Portugal if it may be taxed (under the DTT) in the country of source

UK/Portugal DTT says that property gains may be taxed in the UK, so gains are exempt in Portugal.

Retaining UK main homePortugal…

If NHR does not apply…

Resident in Portugal – taxable on worldwide property gains

Main residence relief on sale of UK property if:

You lived in the property for a continuous period of at least 3 years

You buy new main home within a period of 3 years, from the date of sale, or two years before

Full proceeds are re-invested in new main home in Portugal or EEA

Partial reinvestment – partial CGT liability

Retaining UK main homePortugal…

If NHR does not apply…

Tax treatment same for Portuguese and overseas properties

Only 50% of gain taxable

Held for more than two years - inflation relief

Net gain added to other income and taxed at scale rates of tax (max 48%).

The Inbetweeners… Trusts & Companies under the spotlight

(again)

Structured Overseas Property PurchaseTrust & Company Structures…

Common tax planning in Spain and Portugal, as both countries welcomed international investors in late 20th C

Still a significant number of properties owned this way

Most advice has never been updated since inception

Overseas issue never really highlighted by UK advisors, even after the HMRC’s “shadow director” - Dimsey v Allen push.

Structured Overseas Property PurchaseTrust & Company Structures…

Civil law jurisdictions - no concept of trusts

Assumed the structure and therefore the property fell outside of the domestic tax system

1991 - Spain issued Real Decreto 1080/1991 – a list of countries considered tax havens

1998 - Spain began taxing non-residents owning property

2016 - Portugal introduced laws taxing trusts

Structured Overseas Property PurchaseEU’s Fifth Money Laundering Directive (2018/843)…

Need to establish the Ultimate Beneficial Owner (UBO)

Member states to set up beneficial ownership registers for corporate and other legal entities by 10 January 2020

Trusts and similar by 10 March 2020

Central registers, connected via the European Central Platform required by 10 March 2021

EU member state tax authorities will be able to access these registries freely.

Brexit… How long can I spend in the EU?

Brexit…How long can I spend in the EU?

Legal residency is the right to live in a state

Brexit will have an impact on:

UK nationals who visit their EU holiday home regularly

UK nationals who permanently move to the EU

Strictly when you know you will exceed 90 days – must apply for residency permit

BUT - Freedom of Movement has meant UK nationals come and go as they please.

Brexit…How long can I spend in the EU?A Soft Brexit…

A “Transitional Period” until at least 31 December 2020

Move then and obtain temporary residence card during Freedom of Movement

Have up to 6 months after Transitional Period ends to obtain permit

Renewable annually for five years

If already present for 5 years – apply for a permanent residence card.

Brexit…How long can I spend in the EU?A Soft Brexit…

To qualify for residency permit during Transitional Period:

Proof of sufficient resources, so the individual is not deemed a burden on a Member State’s social care system

Proof of medical insurance

Sufficient resources…

“…shall not be higher than the threshold below which nationals of the host Member State become eligible for social assistance, or, where this criterion is not applicable, higher than the minimum social security pension paid by the host Member State.”

Brexit…How long can I spend in the EU?

A Soft Brexit…

After Brexit existing residency cards would be replaced by new-style cards

No certainty what “sufficient resources” might be

Expectation is those arriving pre-transition - requirements will remain the same.

But - those arriving after Brexit could find it more difficult.

Brexit…How long can I spend in the EU?A Hard Brexit…

“Cliff-edge” legal residency scenario for UK nationals who spend more than 90 days a year in the EU

Become restricted to 3 months in any 6 month period

Only alternative - obtain a residency permit

Move to the EU after UK leaves - much more onerous requirements to become legally resident, particularly around income.

Brexit…How long can I spend in the EU?A Hard Brexit…

UK would fall to become a “third state”, to the EU where sufficient resources rules may become far more onerous

Other third state agreements - have a minimum income level

Often the state’s legal minimum wage.

Eg., France - currently €18,250 per annum

Also, must apply at the French embassy or consulate in their own country of residence before the expiration of the first three months in France – not in France itself.

Closing comments

Closing Comments Keeping up to date with UK and EU tax and legal changes is a

constant battle

EU states becoming far more adept at gathering data and aggressive in chasing tax avoiders and non-disclosers

EU states changing tax law far more quickly and often than before

Brexit means the position for UK nationals is even more difficult to predict and plan for

Taking advice is more important than ever.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based

upon our understanding of current taxation laws and practices which are subject to change.

Tax information has been summarised; an individual should take personalised advice. All

figures quoted in this presentation are for illustration purposes only.

Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the

Financial Conduct Authority in the UK, reference number 179731. Where advice is provided

outside the UK, via the Insurance Distribution Directive or the Markets in Financial Instruments

Directive II, the applicable regulatory system differs in some respects from that of the UK.

Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services

Authority for the administration of trusts and companies. Blevins Franks France SASU (BFF),

is registered with ORIAS, registered number 07 027 475, and authorised as ‘Conseil en

Investissements Financiers’ and ‘Courtiers d’Assurance’ Category B (register can be

consulted on www.orias.fr). Member of ANACOFI-CIF. BFF’s registered office: 1 rue Pablo

Neruda, 33140 Villenave d’Ornon – RCS BX 498 800 465 APE 6622Z. Garantie Financière et

Assurance de Responsabilité Civile Professionnelle conformes aux articles L 541-3 du Code

Monétaire et Financier and L512-6 and 512-7 du Code des Assurances (assureur MMA).

Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax

specialists. This promotion has been approved and issued by BFFM.

Any questions?

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© ICAEW 2018