When investing in a holiday home abroad, your first consideration will always be the location. You need to buy a home somewhere that you will either use regularly or be able to rent out to get a good return on your investment.
Once you have decided where to buy your holiday home and found the house of your dreams, tax really should be your next consideration.
Moving Abroad Permanently
If you move abroad to work but continue to receive an income from the UK, either through a job based here or through a pension or other income, you will still need to pay UK income tax.
You will be treated as a non-resident of the UK from the day after you leave the country, as long as you can prove that you are away either permanently or for the entire tax year.
You can still visit the UK without becoming subject to tax, but only if your visits over a four-year period average out at fewer than 91 days per year.
You are allowed to visit for up to 183 days in a single year.
You do need to tell HMRC when you leave for these rules to apply.
There are special rules for certain types of employee, so it is worth checking these before you go.
Spending Part of the Year Abroad
The tax implications of spending only part of the year abroad will be dependent upon the length of time spent in the UK. If you are still classed as a UK citizen, then you will still need to pay tax as normal, even if part of your salary comes from abroad. If you are retired and have a UK pension, the tax paid on your pension will be the same whether or not you are resident in the UK.
If you are renting out your UK house whilst you are away, you will need to pay tax on that income whether or not you are classed as citizen. You will also be taxed on any income that comes from abroad if you’re classed as a UK citizen. This includes any money that you earn from renting out your holiday home.
Buying Predominantly as an Investment
Up until recently, owning a holiday home that could be rented out a few months of the year was beneficial in terms of tax. Income from your holiday home could be offset against your income tax liabilities on other earnings if that holiday home was anywhere in the European Union.
Sadly, though, this is no longer the case. Holiday homes in general are no longer eligible for business property tax relief as they once did. They are also subject to inheritance tax when you pass away, so the tax benefits of investing in a holiday home are notably diminished. We’d recommend speaking to a tax consultant for advice. For example in Cornwall where I’m based, Francis Clark tax consultancy offer expert tax consultancy.
Capital Gains Tax
Capital gains tax is due on the sale of any holiday home and such sales must be declared to HMRC. However, you can offset this against the purchase price and any money spent doing up the property to minimise the amount that you will have to pay.