Brits are known to purchase property in other European countries such as Spain and France for a variety of reasons. Some people want to be as close as possible to the world’s finest wine selections from Bordeaux and Alsace. Others are happy to trade Britain’s terrible weather for the rocky backdrop and Ibiza’s famous nightlife.
Thanks to arrangements based on the European Union, the process of buying real estate across Europe has become easier for foreigners. However, now that Brexit has been signed into law in January 2020, many people are concerned about whether the overseas real estate environment is as conducive to investment.
Travel changes in 2021
British holidaymakers will not see any change in the way they travel across Europe in the short term, as there will be a pre-agreed transition period before Brexit becomes official. However, this scheme is due to expire at the end of 2020, at which point the way Britons travel is likely to change.
As part of pre-Brexit negotiations, all parties agreed that British nationals would not need to obtain a visa to enter Europe and vice versa. The most likely outcome would be for Brits to require the European Travel Information and Authorization Scheme (ETIAS). Good news. The three-year pre-travel authorization period will likely cost as little as €7, and the document can be applied for online.
Now that it’s abundantly clear that Brits will be able to travel freely across Europe, it’s time to consider whether a holiday home is a good investment.
How to exchange pounds to buy a house
If you’re a UK resident who makes your living in pounds and you want to buy a holiday home in the eurozone, you’ll need to transfer your funds into the euro. Most foreign sellers are happy to accept pounds sterling for property transactions, but at a significant premium.
Online platforms like XE.com specialize in property purchases and allow you to exchange British pounds for euros, the first step in buying a home. This type of platform is also known for offering competitive exchange rates, especially for six- or seven-figure transactions. Consumers who convert pounds to euros through online money transfer services can often do so at below interbank rates. Saving even a fraction of a pound can add up to a lot of money on a multi-million pound deal.
Online currency exchange platforms surged in popularity in the early 2010s as consumers grew tired of the old and outdated traditional banking system, which was known for its surcharges. XE.com alone handles over $75 billion in transactions worldwide.
The process of transferring £1 million to euros is as simple and easy as transferring £100. Customers can set up an online account using one or more money transfer services and link it to a bank account of their choice. The client must also establish the final destination of the euros. If they have bank accounts in their names, such as in France, the funds could end up there. Alternatively, the customer can instruct the money transfer service to send the euros to a notary public or directly to the home seller.
The entire process from start to finish takes approximately 4 business days. However, if intermediary banks are involved in the process behind the scenes, the final period could be delayed by several days.
The other side of the transaction remains unchanged. Suppose a vacation home owner decides to rent out his property when he is not using it and collects the proceeds in euros. Online money transfer services allow you to easily exchange euros for pounds, which can be deposited directly into UK banks, and the rates are also likely to be more competitive than traditional banks.
Importance of remittance services
As such, money transfer companies thrive on the thousands of real estate transactions that occur every year. Between April 2017 and April 2018, Brits bought 8,500 homes in Spain alone. One in five prime property purchases in France are made by British nationals. Almost all of these transactions will require the use of a money transfer service, with rare exceptions occurring where the British person already has income in euros.
If overseas property transactions involving British nationals slow down in a post-Brexit world, the economic impact on the remittance industry could be significant. Money transfer services earn fees on each exchange, potentially costing the industry millions of pounds. Conversely, an increase in vacation purchasing activity could increase business for remittance services and potentially pass the increased savings on to customers.
Regulatory changes unlikely
In Spain and most European countries, restrictions on foreign capital are minimal, as it is a form of external investment in the country. But what happens in 2021 and beyond remains a big question mark.
If the UK government and European countries sign a tax treaty, it is likely to signal that the status quo will not change. The UK and Spain already have a tax treaty covering income tax, but according to the Keystone Act, there is no tax treaty relating to inheritance tax. However, the UK government will also take into account inheritance tax payable to Spain. Submit it to HMRC, the department responsible for collecting taxes in the UK.
In the absence of a signed tax treaty on the books, UK nationals may be subject to the same taxes, including income tax, paid by other non-EU nationals. This will need to be factored into any investment decisions made before the treaty is confirmed in any way.
how to make profit
Generally, UK investors who buy a home in Europe can benefit in one of two ways. First, and perhaps most obviously, the value of real estate increases over time.
France in particular is known for soaring real estate prices as demand for housing far exceeds supply. The average sales price in the 6th arrondissement, the most popular area, rose from 11,300 euros per square meter in 2015 to 14,000 euros per square meter by January 2019, according to data from the Paris Notaries Association. Similar data from the region considered the most affordable is that in the 19th arrondissement, the average sales price ranged from 6,500 euros per square meter to 8,350 euros per square meter over the same period.
Investors can also exit a property deal with a profit if the value of the British pound increases or the euro depreciates. This is based on simple calculations. Let’s say a British investor pays £1 million (€1.203 million) for a house in France. If the same house sold for exactly the same amount of €1.203 million, and the British pound appreciated by 10%, that €1.203 million would be worth £1.1 million.
conclusion
Investing in or purchasing overseas real estate involves intangible value. Families will make lasting memories in one of the world’s most beautiful regions. And the best part is that you can claim to be able to do it in your own home, rather than in a hotel or someone else’s property you rented for the weekend.
So while Brexit brings some uncertainty beyond 2021, the worst-case scenario now is that Britons have to sign up for some documents and queue up for non-EU passports . However, this can all change quickly, and investment home buyers should pay close attention to new developments.
