Assetz® News - UK buy to let could prove a better bet for property investment

UK buy to let could prove a better bet for property investment

4th July 2005 |

The common belief is that typically, investing in a holiday home abroad is a good financial move by virtue of the fact that such properties can be rented out throughout the year, promising strong yields. Many UK investors are opting to invest in second homes abroad, motivated by the lure of relatively cheap properties and good buy to let opportunities. At home the buy to let market also remains strong, largely propped by the "professional" class of property investors, accounting for some 98 per cent of the overall market. However with many potential UK landlords choosing to set their sights abroad, new reports are suggesting that the UK might actually have a better market to invest in, and buyers are being urged to consider investing in UK property.

On a purely financial level holiday letting in the UK could offer significant benefits. According to accountancy firm Grant Thornton there is a range of tax relief available for UK buy to let, and the overall simplicity of dealing in the domestic market has been highlighted as another bonus.

"As the residential property market starts to stabilise and pensions continue to fail to match expectations, more and more people are investing in holiday homes as part of their retirement planning," Ian Luder, tax partner at Grant Thornton told Reuters. "However, buyers should be aware that there may be significant tax advantages to purchasing in the UK.

"Properties in the UK benefit from a wealth of tax relief, steer clear of currency fluctuations and avoid the complexities of dealing in a foreign language and an unfamiliar legal jurisdiction. By contrast, if you buy a property abroad, even if you are resident in the UK, you may have to pay tax in the country in which the property is located and UK tax on the foreign income, claiming double taxation relief. Depending on the country that you choose, you may have a hefty tax bill to pay if the tax rates exceed the rates in the UK."

At present, as many as three in four property investors are thought to be considering buying abroad in the near future, largely focussing their attentions on established holiday home hotspots in France and Spain, whereas only 7.5 per cent of serious investors are likely to buy new properties in the UK over the next 12 months. However, a recent survey revealed that some 80 per cent of potential buyers do not even take into consideration how to get the best exchange rate when buying abroad, and the concern here is that even slight differences can have a big impact on property prices, especially for larger, more expensive properties.

When buying abroad investors are warned to be aware of all costs. In France, legal fees can be high, ranging between four per cent and nine per cent of the overall house price. There is also a regional tax and an occupancy tax if you live at the property for more than eight months a year. In Spain, valuation can be one of the most significant costs and taxes and legal fees can potentially be as much as ten per cent of the property value.