One of the biggest decisions people must make before moving abroad is whether they should buy a property or rent. However, that very much depends on whether you have property here in the UK, and what you intend to do with it.
The choice is to sell your UK home, releasing equity and giving you the cash to fund a new property abroad or rent your property out and hope it gives you an income to pay for a rental in the sun.
While those options seem relatively straightforward, the idea of renting your property out has potential drawbacks. And that means it might be simpler to sell-up and buy again overseas.
Selling up or renting out
Once you’ve decided that moving abroad is what you want, perhaps for a new lifestyle, retirement, or for a new job, it’s time to find a new property. Most people will sell up and start afresh in Spain, France or Portugal, while some will decide to rent out their UK home and then rent abroad.
However, this is not always the simplest option. If you want to rent your own home out, you must consider:
- Changing your mortgage to a buy-to-let. Your existing mortgage company may insist on the switch.
- You are paying insurance on your property.
- You are paying UK income tax on your rental income, over and above your (currently) £11,500 or so tax-free
- You are paying fees to your management agent. This can be around 10% of all your income. You’ll also need to pay “finders” fees each time the agent finds and installs new tenants.
- Empty months. Unless you’re lucky, there will be months when your property stands empty, and you’ll get no income at all. Hopefully, you’ll get a long-term tenant, but often they are lined up for one year, perhaps two and then move on. It might take months for the agency to find someone new.
- You’re still responsible for all the property repairs. There’s all the usual decorating, but also if the boiler packs in, you’re the one who must fork out for it.
- If you were to die abroad with your UK property rented out, your next of kin may have to apply for probate to release the property. They will almost certainly pay inheritance tax on the sale of the property (assuming you are over the threshold).
- Should, after a few years, you decide to sell the house anyway, you might be subject to capital gains tax.
It’s always advisable to check your own circumstances with your financial advisor, but there are some pretty good reasons why selling up is the wisest option. Those months when your property is empty and not making money is the most worrying – will you still be able to afford your rent abroad if that happens?
Selling for a clean break and new start
The huge lifestyle decision of living abroad is why so many people simply prefer to sell up. It’s like making a clean break, a new start. And with all that released equity in the bank, they can fund a property purchase abroad and the costs of relocation. Very often, the property is cheaper abroad. Even though utility bills in places like Spain are higher, especially when you factor in air conditioning, you can generally get like-for-like property much cheaper.
It means you might well be able to find and purchase your dream property abroad and keep some spare capital in the bank. It could be the ideal way to fund your first few years unless you’re going to be working, in which case it’s a nice lump sum for a rainy day.
Except it's not likely you'll get too many rainy days in Spain or Portugal...
Buying a property abroad
The process will vary slightly from country to country, depending on local laws, regulations and taxes. But essentially, once you’ve sold your UK home, you’ll have your budget in mind and can go property hunting in the sun.
If you can, go on fact-finding visits several times in different seasons. This way you’ll get a good idea of what it’s like to live there all year, rather than being in holiday mode.
Register with various estate agents in the area you fancy, and keep in contact with them after you've returned home from your viewing trip to make sure you're notified of new properties as they come up.
Most of the bigger local estate agents will be able to communicate with you in English if you’re language skills are yet to be developed. Putting in an offer is just like it is at home – and the agent will advise you about appointing a local lawyer to act on your behalf. Follow their process, including funding the purchase, perhaps using the services of an established company like Foreign Currency Direct.
Renting a property abroad
Maybe you’ve decided to rent out your own property at home and then rent abroad. Or perhaps you have no property to sell and, without much capital behind you, decide to rent when you go. Renting abroad is obviously easier than buying in terms of the legal steps and logistics to work through.
Again, register with local agents. Most have good online sites, so you can browse to your heart’s content. Searching for your property, whether you buy or rent, is part of the fun of moving abroad – you’ll spend many happy hours daydreaming over photos of villas, rustic cottages or apartments in the sun!
The benefit of keeping your UK home and renting abroad
Although we prefer the logic of selling up and buying abroad, there are a couple of clear benefits of retaining and renting it out, then renting your own place in the sun.
Firstly, if for any reason your stay abroad is cut short, perhaps you simply get homesick or you lose your job, you still have a home in the UK to go to. Further, it’s much easier to hand the keys back for your rental abroad, rather than having to go through the pain of selling a property. However, just as with buying in the UK, you'll have much more freedom to make your new home the way you want it if you own it outright.
Some people decide to rent out for a while, so they can live abroad with relatively little commitment and can make the decision if moving abroad permanently is for them.
Deciding on a property purchase or rental is one of the things you should decide early on in the buying process, for reminders on the other jobs to do before you leave, download our moving abroad checklist.