Enjoy the sun without the property headaches

While the appeal of an overseas holiday home is undeniable, investing in property across borders involves important considerations. Regardless of size and cost, all overseas homes - from one-bed boltholes to luxury villas complete with private pools - have legal, tax and succession implications, and it pays to understand the impact of these both now and in the future.

Alongside the enjoyment of an overseas property comes a range of responsibilities. Owning a home abroad usually involves a range of costs including cleaning, maintenance, utilities, and management services. For those who let their property through short-term rental platforms such as Airbnb, local licensing rules and income tax obligations also come into play.

Rental income may be taxable in the country where the property is located and may also need to be declared in the UK. Double taxation agreements can often provide relief, but the rules vary between jurisdictions, and it’s wise to seek professional guidance to ensure full compliance.

Beyond the day-to-day, property owners should consider how lifetime taxes such as income tax and capital gains tax (CGT) may apply. For example, gains made on the sale of an overseas property may be taxed both locally, and in the UK, where individuals paying the higher rate of UK tax will be charged 24%. The rules can be particularly complex where ownership is shared or where the property has been used personally as well as rented.

Those with non-domiciled status who are resident in the UK should also be aware of recent changes to the taxation of foreign income and gains.

Succession planning is a critical, and often overlooked, element of overseas property ownership. In some European countries, succession laws follow a “forced heirship” model, under which specific relatives are entitled to fixed shares of an estate. In addition, in jurisdictions such as France there are matrimonial property regimes which dictate how married couples’ assets are dealt with both during the marriage and on death of one of the spouses. These regimes can create significant complexity when dividing an estate.

There are ways to get ahead of such issues. Under EU rules, individuals can now elect for their national law to govern succession, but this must be clearly stated in your will. Having a second will - prepared in the relevant jurisdiction and tailored to that country’s legal system - can also help to facilitate smoother administration and reduce delays.

Additionally, it must be noted that inheritance tax regimes vary substantially. In contrast to the UK, where the tax is applied to the estate, some countries levy inheritance tax on the recipient, with different rates and reliefs available depending on their relationship to the deceased. Understanding these distinctions is essential for effective estate planning.

An overseas property can be a hugely enjoyable and rewarding investment whether used regularly by family, let to guests, or retained for future generations. By addressing tax, compliance, and succession issues proactively, owners can ensure their overseas property delivers fun in the sun without unexpected complications.

Rachel Anderson is a Private Client Partner, Thorntons and a qualified Trust and Estate Practitioner​