Sipps favour homes abroad - 21.11.05

UK Mortgage News

The current level of owners of property abroad is set to double to 4.4 million over the next 10 years according to a survey fromBarclays. With many people looking to buy a second home to help finance their existing mortgage in the UK. In Europe the standard rate of interest is 3.4% compared to 5% for a buy to let mortgage in the UK.

Changes in the Sipp (Self-invested personal pension plan) rules next April have increased the interest in buying property abroad. You should be able to gain tax breaks by investing overseas but it should be noted that you can only borrow up to 50% of the value of your pension fund to buy any type of asset and this is not good if your pension fund is smaller than £100,000. Rental income will acrrue tax free a there are no capital gains to pay if you sell.

There are tax implications if you buy outside any Sipps arrangement and those should be properly investigated. If you run the property as a business, you will be able to claim the interest you pay as a tax deduction and how much tax you pay depends on whether you are a "resident" in the UK or "ordinarily resident". If you have paid tax on rental income abroad you can usually claim credit against the UK tax on this amount. When you come to sell the property you will be liable to pay capital gains tax in the UK and may also have to pay local taxes.

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