On other pages in the category Property Abroad, we have already drawn attention to the importance of thorough budgeting. Good and careful budgeting is crucial when investing in foreign real estate!
By budgeting in this way, you can avoid unpleasant surprises. For example, you need to properly estimate the purchase cost as well as the annual recurring costs and taxes associated with the property.
Apart from budgeting, you should also pay attention to potential changes in the future before investing in foreign real estate.
Table of Contents
- 1 What will the future bring? - Investing in foreign real estate
- 2 Investing in foreign real estate and its impact on your country of residence
- 3 Inheritance & succession planning - Investing in foreign real estate
- 3.1 Inheritance law and inheritance tax in an international context
- 3.2 Get guidance when investing in foreign real estate
- 3.3 Added value of a tax expert: Customisation is needed when investing in foreign real estate
- 3.3.1 Scenario 1: Investing in foreign real estate and relocating
- 3.3.2 Scenario 2: Investing in foreign real estate and do NOT move
- 4 Conclusion | Investing in foreign real estate
- 5 Additional information on pension planning with investment properties at home and abroad
- 6 Other information about real estate abroad
What will the future bring? - Investing in foreign real estate
No one can give a sensible answer to this question. Life is full of surprises, positive and negative. It is therefore important to look beyond the obvious when investing in foreign real estate!
Keep in mind the only two certainties in life: death and taxes!
Try to build in security and anticipate changing circumstances in the future. Consider the following questions, for example, before investing in foreign real estate:
- Where are you going to be resident and pay taxes as a pensioner and how much will you have left over net?
- Are you a beneficiary of additional pension savings plans and how will these be taxed in the event of a move?
- How will you settle your estate?
- Wouldn't you do succession planning so that your heirs can maximise their enjoyment of your estate?
Investing in foreign real estate and its impact on your country of residence
Perhaps you are planning to retire gradually with your partner in the country where your holiday home is located.
There is nothing wrong with such a plan, of course. It is your right to enjoy your old age at your favourite destination.
Do consider the legal consequences of such a possible move. Call on a tax expert for this purpose. There are many pitfalls...
Dual residence and double taxation
With such a foreign pension plan, you have to watch out for the pitfalls of careless planning of your country of residence.
Do you wish to remain a resident of your home country or do you wish to become a resident of the country where you are going to buy property and possibly retire?
The problem is that there is no uniform approach to the concept of residence. All countries, including the EU Member States, have different rules. Consequently, this can lead to a lot of financial misery.
For example, several countries have an absolute rule that you are taxed if you stay there for more than 183 days a year. In other countries, on the other hand, other rules of the game apply, such as presumptions of tax residence and/or the outdated concept of the seat of fortune.
Consequently, your plan to retire gradually abroad may be in financial jeopardy: double residence and therefore double taxation.
Without careful planning, two countries may consider you to be a resident and a taxpayer at the same time! If you are considered a resident by two countries at the same time, this can lead to:
- Discussions and uncertainties about the law applicable to your estate and inheritance tax, and
- Discussions and uncertainty about where you are taxable (in financial terms, this also means that you are liable to pay personal income tax twice a year in two different countries).
Solution to avoid personal income tax problems
For the countries with which your home country has concluded a double tax treaty, an internal consultation procedure is provided for in such a double tax treaty in case of doubt regarding the competence to levy personal income tax.
This procedure consists of so-called tie-breaker rules. These rules determine which country may levy taxes. The advantage of these tie-breaker rules is that an individual cannot be taxed twice on the same income.
The disadvantage of such a procedure is that it takes a lot of time and energy. You'd rather avoid this hassle!
It is therefore important to be well advised by a tax expert in the areas of international property taxation, international estate planning, inheritance planning and property law.
Inheritance & succession planning - Investing in foreign real estate
Chances are you are not thinking of retiring or dying yet when you are about to buy a country house abroad.
The purchase phase is traditionally a phase dominated by healthy excitement, a feeling of being alive and even euphoria at the moment when your dreams come true!
Of course, it is dangerous to get caught up in the virtuous cycle and lose all sense of rationality.
Allow us to be a little less romantic and a little more rational about investing in foreign real estate...
Inheritance law and inheritance tax in an international context
You buy a property abroad and you wonder about the inheritance tax on this property when you die...
In other words, when does the national inheritance law of your home country apply to your estate? And what about property located in another country? Which national inheritance law applies then?
General principle: Residence ensures taxing rights
The national inheritance law of your home country applies to your worldwide assets if, as the testator, you had your habitual residence in your home country at the time of your death.
In other words, your estate is governed by the national law of your home country if, at the time of death, you are considered a resident of your home country.
Therefore, if you were to leave your home country and move abroad, the national law of your home country would no longer apply to the inheritance of your estate.
Your estate will then be settled according to the law of your new home country.
Please note: Each country approaches this in its own way and may have certain exceptions. It is therefore important that you seek guidance from a tax expert. For example: US citizens will always be taxable by the US, regardless of their residence. If you have the US nationality, you cannot get out of paying taxes in the US, even if you live in another country!
Get guidance when investing in foreign real estate
Do you want your descendants to get the maximum benefit from your legacy, which will come sooner or later anyway? Then think carefully about how you will be investing in foreign real estate.
- Do you put the property directly in the name of your children, for example?
- Are you writing a special will?
- Are you perhaps better off buying from a foreign or local company?
- Maybe there are ways to reduce inheritance tax and/or capital gains tax on any subsequent sale?
- This way, you could give the country house to your children while retaining the usufruct. The country house is then owned by your children but you as parents can continue to live in it or collect rental income from it.
- You could also involve your children in investing in foreign real estate. This is possible with a so-called split purchase. Here, the parents buy the usufruct and the children buy the bare ownership.
The answers to such questions depend on factors such as:
- Your family situation,
- The country where your real estate is located (choosing the right investment market for real estate [AVAILABLE SOON] is important),
- The function of the property (private, mixed or income property?),
- Whether or not you will become a resident of that country, and
- The domicile of your heirs (in which country are they residents?) in certain cases.
Get expert guidance and choose a legal expert with the necessary experience in family estate law, international estate planning and property taxation.
Added value of a tax expert: Customisation is needed when investing in foreign real estate
Suppose you are thinking of investing in foreign real estate. You can then move and become a resident of the country where this property is located or you can simply remain a resident of your home country.
A tax advisor can help you with your wealth planning for both scenarios (moving versus not moving).
Scenario 1: Investing in foreign real estate and relocating
Perhaps you will be investing in foreign real estate and move and want to do some estate planning. This can be done in various ways.
Before you actually move, you could already donate part of your assets. Then you opt for registration duties and avoid inheritance tax.
Optimisation of existing assets
In terms of optimising your existing assets, the following considerations should be made:
- What type of pensions and supplementary pensions will you receive from your home country?
- What about property you own in your home country?
- How will you handle bank accounts, savings products and investments held in a bank in your home country?
- What about shares you own in a company in your home country (management or holding company, for example)?
- How will you intervene in terms of mandates you hold in a company in your home country?
When it comes to buying property abroad and estate planning, everything depends on your new destination.
In this way, you can sometimes plan in such a way that you can reduce or avoid capital gains tax in the event of a subsequent sale.
You can also sometimes intervene to optimise any wealth tax that may exist locally.
There is also often room for optimisation in the area of death and local inheritance law and taxes:
- Thus, in certain cases, you can optimise the inheritance tax applicable to your assets upon death.
- In certain scenarios, you can optimise the capital gains tax on property realised or deemed to have been realised as a result of the death.
You should also pay attention to potential double taxation in the area of inheritance tax and how to avoid it:
- For example, the country where you are a resident as the testator may levy inheritance tax on your worldwide assets. In principle, your home country no longer levies. But beware, if your home country suspects that you are actually still a resident there, this country will impose inheritance tax on your worldwide assets. And thus a danger of double taxation arises.
- However, countries where you still own property may also levy inheritance tax on the value of this property. This is the case, for example, if you still own property in your home country after you have moved. Again, this poses a risk of double taxation. Some countries even impose inheritance tax on bank accounts and shares held there at the time of death! Once again, there is a risk of double taxation in such a case.
- What's more, other countries focus on your heirs and levy inheritance tax if these heirs are residents of that country and receive an inheritance there as an heir! Once again, there is a risk of double taxation!
Scenario 2: Investing in foreign real estate and do NOT move
Maybe you won't move at all and will continue to live quietly in the land of beer and chocolate or in the land of cheese and windmills.
In such a case, too, it is best to find out how to go about investing in foreign real estate in a smart way and with an eye to the future.
You could use this country house for private purposes only or you could use it as an income-producing property.
For more inspiration on this, read Buy foreign real estate investments [AVAILABLE SOON]: Step-by-step plan for financial success and turnkey investment properties [AVAILABLE SOON] including management service to make passive property investment [AVAILABLE SOON] possible.
Overview of investment properties for sale abroad
Would you like to diversify part of your assets by investing them in buy-to-let properties abroad? But preferably without all the headaches and stress that a landlord normally has to deal with?
Then take a look at the following carefree property investments in France, Germany, Sweden and Belgium:
France - Investing in foreign real estate
- Investing in recreational real estate via co-ownership (part of full ownership):
- You can participate from as little as 15,750 euros
- Entry yield of 7% on an annual basis
- Quarterly returns paid out
- Exit is possible at any time (liquid way of investing in real estate)
- Buy a second home in France for mixed use (carefree rental + own private use):
- Holiday homes (studios and flats) in luxury golf and spa resort in Limousin region
- Up to 9% return per year
- 6 weeks free private use per year (high and low season)
- You acquire full ownership so you can easily finance it with the help of a (mortgage) loan - Minimum required contribution is 42 500 euro.
Germany - Investing in foreign real estate
- Buy a flat in Germany with carefree returns:
- Including management service
- Completely carefree
- Full ownership, so you can (partly) finance such a buy-to-let property with a (mortgage) loan [AVAILABLE SOON]
- German real estate as an investment:
- Carefree rental guarantee
- Growing economy
- Real rental market
- Student rooms in Leuven as an investment [AVAILABLE SOON]:
- Thriving student city in high demand
- Rental guarantee by the building developer
- High-quality property at prime location
- Invest in rental property for Swedish families [AVAILABLE SOON]
- Up to +/- 7% rental yield per year
- Low entry threshold compared to property prices in other countries
- Value for money
Optimising existing assets - Investing in foreign real estate
Depending on the situation and the double tax treaty concluded between your country of residence and the country where the property is located, you often have various optimisation possibilities...
- In the case of a buy-to-let property, you can buy it with a company from your home country or with a local company in order to optimise taxes on rental income.
- In certain situations, planning allows you to optimise the possible wealth tax.
- It is sometimes possible to plan in such a way as to minimise or avoid capital gains tax in the event of a subsequent sale.
When it comes to inheritance tax, in most cases you can really make a difference with well thought-out inheritance planning:
- In this way, with planning, you can reduce the inheritance tax that applies to the property and any other movable assets (such as shares and bank accounts) in that country upon death.
- In certain cases, with planning, you can also optimise the capital gains tax realised or deemed to have been realised as a result of the death.
You should also pay attention to potential double taxation in the area of inheritance tax and how to avoid it when investing in foreign real estate:
- Thus, the country where the property is located may levy inheritance tax on this property. Some countries even impose inheritance tax on shares and bank accounts held there. This may result in double taxation or avoidance of it, but it may result in a disadvantageous determination of the inheritance tax rate in your country of residence.
- If you are a resident of your home country as the testator, this country can levy inheritance tax on your worldwide assets. In principle, the country where you own a country house only levies inheritance tax on this property. But beware, if that country suspects that you are actually a resident there, it may be that this country will levy inheritance tax on your worldwide assets. And in such a case, there is a risk of double taxation in the area of inheritance tax.
- Suppose you are a resident of your home country and you die. Depending on your home country, they may then levy inheritance tax on your worldwide assets. But if you have heirs who live abroad, the whole story could turn out to be far from satisfactory! Some countries focus on your heirs and charge inheritance tax if those heirs are residents of that country and receive an inheritance there as an heir! Once again, there is a risk of double taxation!
Conclusion | Investing in foreign real estate
There is a lack of harmonisation at international and even European level in terms of the connecting factors for levying inheritance tax. As a result, as a taxpayer you are dependent on national or bilateral arrangements (but these are few and far between).
This can lead to situations where inheritance tax is effectively owed twice on the same estate! You read it correctly, even in a European context double taxation is not corrected by the European Court of Justice.
The reasoning is that each Member State may exercise its fiscal sovereignty. Each Member State therefore has the autonomous power to determine the basis on which it applies inheritance tax.
The complexity of an estate with an international flavour is enormous and can never be approached with too much care.
There is no doubt that you need tailor-made succession planning to avoid unwanted financial surprises later on!
Planning on investing in foreign real estate?
Then let yourself be guided by a professional legal expert with experience in family property law, international estate planning and international property taxation.
Additional information on pension planning with investment properties at home and abroad
- Passive pension insurance with real estate? [AVAILABLE SOON] Frequently asked questions
- Providing your own extra pension for your old age? [AVAILABLE SOON] Eight reasons to choose rental property
- How much money do I need for my retirement? [AVAILABLE SOON] Tips for correct assessment
- Saving for retirement [AVAILABLE SOON]: Real estate as an investment versus traditional forms of retirement savings