Relocating abroad? What to do with your UK home whilst you’re away.
It’s not just younger people emigrating to Australia and New Zealand these days, or executives heading to the US or Hong Kong. We can all move abroad if we want to – at least until the end of the EU transition period – and around 40% of the hundreds of thousands of Brits moving to Spain and Portugal are retired. For these people in particular, says Christopher Nye, editor at Property Guides, the question of what to do with their UK property is critical. Here we run through their options.
When Property Guides surveyed their readers on their plans for buying a home abroad, they found that around 40% intended to keep a place in the UK too. We think it’s a very sensible move, but let’s for a moment consider why you wouldn’t do that.
The case for selling up in the UK begins with the money. At present the property markets abroad are moving faster than in the UK. According to the Global Property Guide, the UK’s price growth over the past year has been 0.33%, which is 31st out of 36 European nations. Compare that with Germany at over 10%, Greece and Portugal at nearly 8% or Spain growing at 4.5%. If you see property as an investment, your returns abroad are better at the moment.
Secondly, retiring to France or the Mediterranean, or emigrating to destinations further afield will probably be the best thing you ever do but it won’t always be easy. To avoid being a “boomerang Brit”, as they’re known Down Under, shooting back to Britain as soon as the going gets tough, it can help if you fix firm roots in your new country asap – to burn your boats, essentially.
Thirdly, you want the home of your dreams abroad don’t you? So why not sell in the UK and get the best you can afford?
With all that said, there are still great reasons to keep a foot in the UK. Moreover there are several options for doing that:
If you need the money from your British property to buy abroad but don’t want to part with the family home, remortgaging on a buy-to-let basis will give you the extra cash you need. There are some excellent deals on buy-to-let mortgages with initial rates as little as 1.5%.
Given that the average rent for a three-bedroom city centre flat in the UK is around £1,200 while in Spain it’s £850 and in Portugal £936, the difference between your income and expenditure could support your lifestyle.
However, you do need to be careful about the tax rate you’re paying. If you live abroad but rent out a property in the UK you’re a ‘Non-Resident Landlord’. This means you pay tax on your rental profit in the UK at your marginal rate. If a letting agent collects the tax for you they will do so at a flat rate of 20% and you may have to top that up if you’re into the 40% tax band. You also need to ensure you’re deducting all your allowable expenses, which a letting agent may not do. So do consider getting an accountant to work out what you should be paying rather than the letting agent.
You also need to consider how you will look after the property. If you’re doing this using a management company your cheapest option is simply to have them find the tenants for you, check references and take the deposit. They’ll normally charge a flat fee of the first month’s rent for that, or a percentage over the whole rental term. Around 7% over a six-month tenancy is about average.
You can pay extra for them to check the inventory for a furnished property, or to continue taking the rent – including chasing up any arrears.
Full management will certainly be the easiest option if you’re the other side of the world. This means the management company will sort out all maintenance issues as well as rent collection etc. You can expect to pay 10-15% of the rental for this.
Before trusting your property to a lettings agent, do check they are members of professional associations such as the NALS or ARLA.
Keeping pace with UK property values
Many expats worry that if they step off the British property ladder they will never get on it again, especially if they’re from London or the South East. In Spain over the past ten years prices have fallen by nearly a quarter (admittedly mainly in the early years after the financial crisis), while in the UK they’re up by 35%, according to data gathered by the Global Property Guide. Indeed according to the UK’s Office for national Statistics, the average price of a British property rose from around £160,000 in 2009 to £225,000 today.
If you want to sell the family home but keep a toe-hold in the UK, there are several ways to keep track of the UK property market without locking up too much of your cash. One is to buy a smaller property, such as a buy-to-let flat or two in one of the cheaper (but up-and-coming) cities. There are various property-related peer-to-peer or crowdfunding options too.
Be careful what you are investing in. A regulated investment is one where the UK’s Financial Conduct Authority (FCA) deems it suitable for smaller scale investors. Unregulated property schemes might include student pods, car parks, storage or even forestry. These are considerably higher risk, with the market full of dodgy operators. Much safer are real estate investment trusts (REITs) that should, in theory, track the property market. Before investing in any such schemes, use a good IFA.
Whatever you choose to do and wherever you choose to go, your UK property can be an anchor and even a lifeboat. Just don’t let it be a ball and chain, stopping you living your life to the full.