An often neglected consideration during the purchase procedure is the exchange rate of the currency in which the property is to be bought. This is susceptible to market forces and can fluctuate significantly enough to cause large changes in the currency amount that will have to be paid for the property purchase.
When buying a property abroad, you will know the price of the property in the local currency but you will not know your actual cost until you buy all of the currency to pay for it. This means that the property could either cost you more than you had planned (if the local currency strengthens) or the property could become cheaper (if your currency strengthens).
Recently GBPEUR has fluctuated more than 10% and similar against the USD within a matter of months, so this does deserve careful consideration. On the basis that you are buying a property and not speculating on the currency markets, it is worth fixing the exchange rate for all of your future stage payments to the agent or developer.
A recommended option to overcome exchange rate fluctuations is to secure the rate with a Forward Contract. This mechanism is especially useful when market conditions are currently advantageous, but the currency is not actually needed until a future date.
The situation can become more complex when purchasing a new property off plan. This will typically involve multiple stage payments over periods of up to 18 months or longer. Due to only guide dates being given for completion of each stage, a series of Forward Time Option contracts could secure the rates right up until the final completion, whist remaining flexible in order to accommodate unspecific dates.
There is no doubt your tax situation will be affected as a result of your property purchase in a foreign country. Expert advice should be sought from a professional who can specifically offer guidance on issues such as : liability to taxation, capital gains tax, inheritance tax, foreign taxation, and the double taxation implications.
As an example there are different inheritance tax rules for properties overseas. In the UK, inheritance tax starts on assets worth more than £250,000, but in some countries the threshold starts at £10,000. Transfers between husband and wife are exempt from inheritance tax in the UK, but may be taxed in the new country.
Many European countries prevent homeowners from leaving property solely to their spouse, but force them to divvy it up between children as well. This can potentially cause problems for those in second or third marriages, where the current spouse could be forced to sell their home. Even writing a Will may not be able to change this, although it could give the surviving spouse the right to continue living in the property.