Defaqto

Offshore mortgage details

 Currency services Offshore banks like Nat West International, Bank of Scotland offshore and specialist providers, like HIFX and Caxton, offer currency services.

These services should be able to help you hedge the risk of currency fluctuation in the period between putting down a deposit down and completing on a purchase.

This is because many holiday homes are sold on 'off-plan' and can take two years to complete. Developers usually ask for a deposit and possibly one or two stage payments before completion which could be several years later. 

This means you are exposed to currency risk on each payment and certainly on every monthly mortgage repayment after completion.

For example a Spanish property costing €200,000 would have cost £130,864 at the beginning of June 2004, when the exchange rate was €1.5283 to the pound.  

By March 2008, the same property would cost £153,374.23 because the euro had strengthened against the pound to €1.304. If you had bought euros to cover the cost of the property in June 2004, you would have saved yourself over £20,000.

Currency exchange services

Buying currency on a regular basis is time consuming and expensive because of currency fluctuations and transmission fees. A currency service from a specialist provider like HIFX allows you to arrange for payments by direct debit at a fixed exchange rate for up to two years in advance.

Specialist currency providers are generally cheaper than using a high street bank for frequent transactions or large money transfers.

There are two categories of foreign exchange:

• speculative foreign exchange, and
• deliverable foreign exchange

Speculative foreign exchange is regarded by the Financial Services Authority as an investment and therefore falls under its remit.

Deliverable foreign exchange, however, is deemed to be money transfer and is therefore regulated by HM Customs and Excise, so this includes the currency services of the main high street banks.

Mortgage Advice

Key tips

• Find a regulated financial adviser experienced in offshore financed property transactions who can provide independent tax planning, currency and financial advice.
• Consult an international specialist mortgage and property broker

Buying a home in Spain: the tax and legal issues

Spanish fees and taxes

Before you can own a property in Spain, you will need a national insurance number, called an NIE number, which is a foreigner identification number.

You can obtain this by applying through the Spanish consulates in London, Manchester amd Edinburgh or by going in person to the nearest immigration office or police station in Spain.

You will need to take your passport, some passport photos, a copy of the property purchase contract and a completed application form. If you are planning to live in Spain permanently, you will also require a resident’s permit.

Permits can be temporary (for up to one year) or permanent (for five years.. If you are employed, self-employed or a student in Spain, it is not obligatory to obtain a resident's permit, but it can make it easier when dealing with utility companies.

If you rent your property, you will be required to pay income tax on the rental income. If you are non resident, this will be charged at 25 per cent of the gross rent, subject to certain reliefs and allowances.

Even if you do not rent out your property and it is used purely as a second home, you will still be taxed as though it is being rented. This charge, called the IRNR is charged by the Spanish authorities at two per cent of the declared value of the property, and then taxed at 25 per cent.

Council tax is also payable and may have to pay a local community charge if you buy a property in a development or condominium.

Each time you file a tax return, you will be assessed for wealth tax as well. Residents and non-residents must pay this tax on their total assets in Spain (minus any Spanish mortgage) on a progressive scale from 0.2 per cent to 2.5 per cent.

Capital gains tax applies when you sell the property and since January 2007, CGT has been charged at 18 per cent bringing foreigners’ CGT liability in line with that of Spanish residents.

Certain allowances apply which may reduce your liability after about five years of ownership.

Inheritance tax is a major consideration for anyone buying a property  in Spain. It is essential to  write a Spanish will and it is a good idea to ensure that the existence of your overseas property is recorded in your UK will as well.

But always seek specialist legal advice on wills, land title, hidden costs, insurance and the home buying process before you start out.

UK banks offering overseas mortgages

Foreign nationals buying property in the UK

To obtain a mortgage in the UK, lenders will normally require sight of  a UK work permit or a permanent right to reside in the UK.

There are tailored home loans for foreign nationals or employees of government agencies or multinational corporations who expect to stay in the UK for an extended period

You will need:

• proof of your right to reside in the UK for more than 3 months old or a work permit, or
• have a permanent work contract and income references, or
• evidence of a permanent right to reside and paperwork showing you are a taxpayer

UK lenders are unlikely to consider you if:

• you are an asylum seeker
• you come from a country subject to Sanctions Orders
• you have no credit record or proof of earnings

Buying a property in the UK

Whether you are non resident or non-domiciled, but want to buy in the UK property market, you need to bear in mind tax and currency considerations in everything that you do.

New wide ranging tax changes applying to non domiciled individuals who have been resident in the UK for more than seven years came into force on 6 April 2008 so consult a specialist tax adviser as to your position.

Questions to ask yourself

• If you are buying in the UK, are you more interested in a low mortgage rate or tax efficiency? UK banks may charge lower fees than offshore investment banks or lenders, but offshore mortgages may charge a lower interest rate.
• Which currency do you want to borrow in? This is likely to be dictated by the currency in which you are paid or in which most of your assets are held, but bear in mind the tax implications of bringing offshore invested money into the UK
•  Interest-only mortgage or repayment? Do you want to repay the capital at the end of the mortgage or repay the capital and interest via a repayment mortgage?
•  Do you want your offshore bank/mortgage adviser to take charge of the property purchase on your behalf or are you happy to do this work yourself?