Some of our clients who have some form of offshore interests feel the temptation to purchase property overseas. We find our North American clients tend to look at the Caribbean or Central America and places like Costa Rica and EU residents often consider buying overseas in nearby France, Spain, Cyprus, Italy or Portugal; and most of the times, currently, also looking for business opportunities due to so under-priced property, due to the market crash.
But in any case, people who own or intend to own property abroad do not fully understand or recognise the implications of Capital Gains Tax, Inheritance Tax and the peculiar rules relating to Forced Heirship.
Tax Considerations of
Capital Gains Tax
Capital Gains Tax, which is essentially a profits tax, varies greatly between countries and ranges from zero % in countries like the Netherlands, to 40% in the United Kingdom, 27% in Spain and 19% in France. Countries which impose Capital Gains Tax also have different rules relating to relief so careful consideration has to be given to the nature of the investment, the term of the investment and the specific rules that apply for each country. It should also be noted that certain countries e.g. France may apply a withholding tax on the disposal of property unless a tax agent satisfies the notary that the Capital Gains taxes if any have been accounted for.
Inheritance Tax and Succession Taxes are taxes that relate to the transfer, upon death, of assets from spouse to spouse and to children. These taxes are often complicated, onerous and particularly high in Continental Europe where they can exceed 60%. In addition, most Continental European countries have Forced Heirship rules where the laws prescribe that children cannot be disinherited from parents’ estates and therefore are entitled by law to a share of the estate.
Many European centres notably Spain, Portugal and France impose an annual wealth tax based on the Market value of the property. This type of tax may exceed 3%. There are certain structures available to mitigate this so therefore serious consideration has to be given to the method of ownership.
The Offshore Opportunity
For clients wishing to purchase real estate in Spain or elsewhere for investment purposes, or for those seeking to purchase a second property for leisure or retirement purposes, there are substantial benefits to be derived through the establishment of a corporate, trust or foundation structure to address these issues.
With our knowledge of property ownership laws and regulations, along with our tax planning expertise, we can help you reduce your exposure.
Should you wish to buy property in Cyprus, Portugal, Spain, the United Kingdom or the USA, please contact one of our consultants for further information.