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What is the most tax-efficient way of buying a doer-upper in Italy?

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My husband and I are hoping to purchase a doer-upper property in Italy that we can renovate and let out as a holiday home during the summer months for some extra income, as well as to use ourselves with our children during half-term breaks.

What is the most tax efficient way of purchasing a property overseas and running it as a holiday home, and how can we avoid being taxed twice in the UK and Italy, including if we were ever to sell up? We also own our family home here in the UK. MN

You'll be taxable on any income from your Italian property and will need to declare it

You’ll be taxable on any income from your Italian property and will need to declare it

MailOnline Property expert Myra Butterworth replies: Buying a property in this country can be a big undertaking, let alone attempting the process overseas.

If you are looking at buying a property in another country, you’ll be dealing with a different market that will include different admin and costs.

We speak to an tax expert about some of the financial factors you need to consider if you are thinking of buying a property overseas, specifically in Italy.

Mike Hodges, of accountants Saffery Champness, replies: Purchasing a property overseas is always an adventure, bringing new lifestyle opportunities as well as the potential of a new income stream if you do decide to let out your new holiday home, even if only to contribute to the running costs.

But whether purchasing just to use yourself, or as a business venture, it’s wise to have an eye on the tax implications as you don’t want to be worrying about the taxman while soaking up the Italian sunshine.

In the age of the automatic exchange of information between tax authorities, don’t fall into the trap of thinking that overseas is out of mind for the tax authorities. 

You can assume that HMRC will receive information about your Italian investment, information about for example details of any Italian bank account you may have and any interest it generates.

Don’t let this be a worry, but do make sure that you remember to keep the taxman informed.

Assuming the UK is your permanent home, you will be classified as a UK resident which means that when you decide to purchase a second home overseas, you will be taxable on any income arising on your Italian property, and will need to declare it to HMRC via the foreign section of your annual self assessment tax return.

You will also need to make sure you are fulfilling your local tax obligations on top of those you have in the UK and it is worthwhile from the beginning taking local tax and legal advice – after all you are making a significant investment.

How to save on foreign money transfers 

If you are sending money abroad or transferring cash from foreign currency back into pounds, it pays not to use your bank.

Banks typically load currency exchange rates in their favour and can charge percentage fees on top that eat a large sum of your cash.

The best way to save money is to use a specialist currency exchange service.

This is Money has partnered with FXCompared to help readers find the best rates on money transfers.

> Use our tool to compare money transfer exchange rates 

Don’t worry that all of this means that you will end up paying tax in both this country and Italy. The UK and Italy have a double taxation treaty in place to ensure that you are not taxed twice on income and capital gains. 

The way this typically works is that any income you have from your Italian property ends up being taxed at the higher of the UK or Italian tax rate. However, you will need to ensure that you apply for this relief. It is a good idea to use an accountant to steer you through the complexities here.

It is worth bearing in mind that you will also be entitled to the £1,000 a year property allowance which provides relief on any property income, whether in the UK or overseas, if your property income is £1,000 or less. If so, you will not have to declare this income on your tax return.

If you decide to sell your holiday home, you will be subject to capital gains tax just as you would if you were selling a property in the UK. Again, the double tax treaty will mean that you will not pay tax in both countries. 

Your capital gains tax liability will be dependent on your UK tax status, ranging from 18 to 28 per cent. You will, though, benefit from the £12,300 Capital Gains Tax annual exemption – i.e. the amount of profit you can make on sale tax-free.

As you are looking at a doer-upper, do remember to keep track of everything you spend on the property as when it comes to calculating any capital gain, any capital expenditure will be deductible from the eventual proceeds, along with what you pay for the property.

Keep track of everything you spend on the property as any capital expenditure will be deductible from the eventual proceeds

Keep track of everything you spend on the property as any capital expenditure will be deductible from the eventual proceeds

One thing that sometimes takes people by surprise and just to be aware of, is the effect of exchange movements between the pound and the euro.

 It is not uncommon for someone to make a loss in euros but, by the time what you paid for the property and what you sold it for, converted into pounds at the spot rates – the currency exchange rate on the day of the transaction – gives a sterling taxable gain.

And then there is a slightly bleak reality – but an important tax issue to consider nonetheless – which is inheritance tax.

According to UK tax rules, as a UK domicile then any overseas properties are included in the value of your estate, potentially making you liable to inheritance tax if its total value exceeds the £325,000 nil rate band (you may also benefit from the additional £175,000 allowance when passing on your permanent family home). Between the two of you, this equates to an exemption of as much as £1million.

The other practical issue are the legal rules that apply to determine what happens to the property when you die. 

Don’t assume that the same rules will apply in Italy as we have here in the UK. Again, there is no substitute for good local advice, both on tax and legal aspects.

Clearly, there is a lot for you to think about before you embark on your new adventure. Certainly don’t be put off by the tax and other issues, but do invest in good tax and legal advice here and in Italy before you commit yourselves. 

That way you will know exactly what lies ahead before you get there rather than only finding out when there is a problem that needs sorting out. That way you will be able to the whole experience without worrying about the taxman looking over your shoulder.

Worth buying through a company? 

Is it worth buying the property through a company, be it registered in England or overseas? 

Mr Hodges explains that setting up a company to hold and manage property assets can be an attractive option in some scenarios, particularly where multiple rental properties are held in a portfolio. 

There can certainly be some tax advantages including, for example, any gains made on sale of the property being taxed at the much lower corporation tax level of, currently, 19 per cent versus the 28 per cent top rate of capital gains tax payable as a private individual making a disposal. 

However, he says that incorporation should not be entered into lightly as there are significant ongoing compliance hurdles, including company reporting, and other practical considerations such as setting up company bank accounts. 

‘A major hurdle many face when incorporating a property business is that the transfer of a property from an individual to a company will be treated as a disposal for CGT purposes – meaning a potentially hefty tax bill, though there are reliefs available – and most often an SDLT charge to boot,’ he says.

‘Meanwhile, high value properties owned by companies may face the Annual Tax on Enveloped Dwellings. It is highly complex to reverse the decision to incorporate – so while there certainly are benefits, a balanced long-term view is needed.’

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Rishi Sunak’s swimming pool complex at his manor house is pictured as he tries to become the next PM

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Rishi Sunak‘s lavish private swimming pool complex at his North Yorkshire manor house has been pictured as he continues to battle Liz Truss to become the next Prime Minister.

The former Chancellor of the Exchequer, who like Ms Truss is facing questions over how they will deal with the ongoing cost-of-living crisis and spiralling energy prices, has spent £400,000 on the new pool.

He is also building a gym and tennis courts at the £2million Georgian manor near Northallerton, with reports from earlier this year estimating he would have to pay £13,000-a-year to keep the new pool warm. 

However, this figure may have risen dramatically over the last few months as energy prices have continued to surge, putting millions of people in the UK at risk of not being able to pay their bills.

Yesterday Mr Sunak, who has been criticised for building the pool while his local swimming baths in Richmond are forced to close due to rising energy bills, pledged to spend billions more to help people with the cost-of-living crisis.

The former investment banker, who made a fortune before becoming a politician, said there was a ‘moral responsibility’ to offer extra help, while also taking a swipe at Ms Truss’s plans to cut taxes.

He pledged to give more help to pensioners and those on benefits, while also vowing to cut VAT on energy bills – which he said could raise total support for families to around £700 to £800 – while energy bills look set to reach an eyewatering £4,400 after Christmas.

A gym, tennis court and swimming pool complex at Rishi Sunak's North Yorkshire manor house has taken shape after months of construction

A gym, tennis court and swimming pool complex at Rishi Sunak’s North Yorkshire manor house has taken shape after months of construction

The Tory leadership hopeful is thought to have spent in the region of £400,000 on the extension to his Georgian Grad2-II listed property

The Tory leadership hopeful is thought to have spent in the region of £400,000 on the extension to his Georgian Grad2-II listed property

It comes as Mr Sunak, pictured here in a visit to St John's Wood Synagogue yesterday, continues his quest to become the next Prime Minister

It comes as Mr Sunak, pictured here in a visit to St John’s Wood Synagogue yesterday, continues his quest to become the next Prime Minister

The swimming pool at his Grade-II listed manor house, where he typically spends his weekends with his wife and two daughters, has been under construction for several months.

The 42-year-old applied to the local council to build an L-shaped pool house, which will include a hot tub, utility and changing area and plant room, last year.

These plans, which included a 12-metre by five-metre swimming pool, were later approved by the council.

No tax payer money is thought to have been used in building the complex, and there were no objections from people living nearby. 

Reports it would cost £13,000-a-year to heat did not go down well among members of his constituency, especially after the sharp rise in energy bills.

The 42-year-old applied to build an L-shaped pool house, which will include a hot tub, utility and changing area and plant room, last year

The 42-year-old applied to build an L-shaped pool house, which will include a hot tub, utility and changing area and plant room, last year

It will include a tennis court (which can be seen in the bottom half of this picture), as well as an indoor private swimming pool

It will include a tennis court (which can be seen in the bottom half of this picture), as well as an indoor private swimming pool

No tax payer money is thought to have been used in building the complex, and there were no objections from people living nearby before it was approved by the local council last year

No tax payer money is thought to have been used in building the complex, and there were no objections from people living nearby before it was approved by the local council last year

Retired steel worker Leslie Porter, 69, told the Mirror: ‘Some people are having to choose between heating and eating. Bills are all rising and he does this. It’s obscene.’

Receptionist Hayley Hadden added: ‘He is a millionaire many times over and it looks like he is rubbing our noses in it. He doesn’t have to worry about paying his bills.’

It is one of a number of properties owned by Mr Sunak and his wife Akshata Murthy, who is the daughter of one of the richest men in India.

While he was chancellor the family lived in a flat above No 10 Downing Street, but earlier this year they moved to their £6.6 million mews house in Kensington.

The L-shaped pool house, which is under construction after permission was given last year, is set to inlcude a hot tub, utility and changing area, and a plant room

The L-shaped pool house, which is under construction after permission was given last year, is set to inlcude a hot tub, utility and changing area, and a plant room

Reports it will cost £13,000-a-year to heat did not go down well among members of his constituency, especially after the sharp rise in energy bills

Reports it will cost £13,000-a-year to heat did not go down well among members of his constituency, especially after the sharp rise in energy bills

Work has  started on construction of the swimming pool, gym and tennis court at the Sunak's North Yorkshire manor earlier this year

Work has  started on construction of the swimming pool, gym and tennis court at the Sunak’s North Yorkshire manor earlier this year

They also own a £5.5 million home in Santa Monica in California, where Mr Sunak has been tipped to live if he decides to quit politics in the UK.

Mr Sunak, who worked as an investment banker for firms California, India and Britain, including Goldman Sachs, is known to use the Yorkshire property when Parliament is not in session and he doesn’t need to be in London.

As his battle to become the next Prime Minister with Ms Truss heats up, this week the pair exchanged a series of barbs over their approach to the cost-of-living crisis.

The ex-chancellor has been accused by his rival’s camp of ‘Gordon Brown-style politics’ with a ‘socialist tax and spend’ agenda.

In a swipe back at the Foreign Secretary tonight, Mr Sunak suggested Ms Truss’s tax-cutting proposals were not ‘the moral thing to do’.

Rishi Sunak pledged to give more help to pensioners and those on benefits, while also vowing to cut VAT on energy bills to help with the cost-of-living crisis

Rishi Sunak pledged to give more help to pensioners and those on benefits, while also vowing to cut VAT on energy bills to help with the cost-of-living crisis

He also insisted that ‘starry-eyed boosterism’ would not steer the country through the inflation crisis.

In another jibe at Ms Truss, Mr Sunak claimed he would ‘rather lose’ the contest to become PM than promise ‘false things I can’t deliver’.

Both he and Ms Truss have faced calls to pledge further support during the cost-of-living crisis after energy bills for typical households were this week forecast to soar to more than £4,200 next year.

‘I do feel a moral responsibility as prime minister to go further and get extra help to people over the autumn and the winter to help them cope with what is going to be a really difficult time,’ Mr Sunak said.

‘I think that is the right priority.’

Mr Sunak suggested his rival Liz Truss's tax-cutting proposals were not 'the moral thing to do' as he took a series of swipes at the Foreign Secretary

Mr Sunak suggested his rival Liz Truss’s tax-cutting proposals were not ‘the moral thing to do’ as he took a series of swipes at the Foreign Secretary

The Foreign Secretary has faced pressure to match Mr Sunak’s promise of more direct support for families, after she previously steered away from pledging extra ‘handouts’ to ease the cost-of-living crisis.

Mr Sunak’s camp have accused Ms Truss of a ‘major U-turn’ after she today insisted she was not ruling out further cash payments.

But the Foreign Secretary has maintained that tax cuts – and boosting the economy – are her ‘priority’.

Ms Truss’s promise to cancel the National Insurance rise, scrap a planned increase in corporation tax, and remove green levies on energy bills appears to be proving popular with Tory members.

Mr Sunak has warned that Ms Truss’s tax-cutting plans will worsen the inflation crisis and cause interest rates to rocket.

He insisted he was ‘prepared to lose this contest’ rather than ‘saying the easy things’ and not staying ‘true to my values’.

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Window shopping: Stained glass or acoustic? Solid wood or plastic?

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Your front door isn’t there to keep people out, it’s there to welcome them in.

Along with the windows — those peep-holes into your life — the style and colour tell friends and strangers alike who you are and what they can expect when they set foot inside your home.

‘Windows can make or break a space,’ says luxury interior designer Katharine Pooley. ‘They often don’t quite receive the attention they should, which is a shame as with the right ironmongery and a beautiful finish they instantly upgrade the overall aesthetic.’

Inviting: Stained glass windows add colour and personality to a home and tell friends and strangers alike what they can expect when they set foot inside

Inviting: Stained glass windows add colour and personality to a home and tell friends and strangers alike what they can expect when they set foot inside

And yet we spend twice as long selecting a kitchen worktop than we do choosing windows for our house.

So what options do you have to make them pretty as well as practical?

Plastic fantastic?

First off, don’t go for those horrid brilliant white, smooth plastic frames for windows. They often look ugly.

If you have to get uPVC because you’re on a tight budget, then at least get them in off-white with a woodgrain effect — some brands are pretty convincing nowadays.

KJM does a good line — for a double-glazed casement in woodgrain-effect measuring 1,200mm x 630mm, the price is about £275 supply-only.

Heavy metal

The sleek, hip-kid-on-the-block, aluminium-framed windows look up-to-the minute.

And because metal is stronger than wood or uPVC, the frame will be much slimmer, so there’s a larger area for glass.

We’re used to a cool grey colour, but you can have the frames made in any hue you like. So you can have them in forest green, midnight blue or flame red.

The same windows as above in aluminium would be £515.

Colours: You can have window frames made in any shade you like, though grey is popular

Colours: You can have window frames made in any shade you like, though grey is popular

Picture windows

Oh, the fun you can have with stained glass. Coloured designs are usually banished to little fan-lights at the top of doors in late Victorian houses.

But why not have coloured or picture panels in your front windows. You can have a nautical theme if you live by the sea; or an abstract whirl of shapes and colours.

A window with a bespoke design from Cheam Leaded Lights of about 1,200mm x 630mm will cost in the region of £2,500 to £3,000 supply-only.

Modernist style

Crittall windows or doors feature a sharp Art Deco design with slim black steel frames divided into squares. 

They have had a style renaissance over the past few years, somehow looking both up-to-date and classic at the same time.

While the Crittall company still manufactures the official items, you can get them in the same style from a host of other firms.

Crittall’s windows range from £500 to £850 per square metre, including installation.

Upgrade your glass

You can get all sorts of special glass these days. If you live by a busy road, acoustic glass will do better for you than standard double glazing.

Double glazing has two panes of glass with a void between them, whereas acoustic glass has two panes sandwiched together with a thin plastic layer in the middle to filter out more sound waves. 

Polarised glass keeps out the sun’s rays on hot days. And reflective glass turns windows into a one-way mirror so you can look out but passers-by can’t look in. 

Roseview’s Ultimate Rose windows are made from uPVC, but almost indistinguishable from wood.

A 1,200mm x 630mm acoustic glass window costs about £900 supply-only.

Choose wisely: The right windows can make or break a space, according to interiors experts

Choose wisely: The right windows can make or break a space, according to interiors experts

Solid wood

Wooden windows are becoming harder to find as vinyl and fibreglass take over, but they’re durable and can be a charming addition to a home.

Wooden Windows make bespoke timber windows and doors. It’s worth matching the two; after all, there’s nothing quite like the feel of a solid wood front door thudding into place.

It says that your castle is now secure against all onslaught. They do take some maintaining, though — you will have to repaint every four or five years, and there’s the chance of warping, which could make it more difficult to close or lock.

Old English Doors do a good line in hand-made Georgian-style, six-panelled solid oak doors from £4,320 supply-only.

Savings of the week! Rugs 

Temperatures may still be soaring. But the predicted higher fuel bills in the autumn means finding ways to make your home more cosy should start now.

A rug pulls all the elements in a room together. It also provides a layer of insulation, trapping cold air underneath.

Faded: La Redoute’s version in red and blue, pictured, is reduced by 25%, from £59 to £230 (laredoute.co.uk)

Faded: La Redoute’s version in red and blue, pictured, is reduced by 25%, from £59 to £230 (laredoute.co.uk)

Some heartwarming bargains of as much as 50 per cent off are available which, with care, should keep you snug for years. 

The abstract pattern Kista from West Elm in pale grey, blue and yellow would suit a stripped-down decor. It now costs from £112.95 to £519.95 (depending on size) down from £449 to £1,039 (westelm.com). 

The Pollo from The Rug Shop UK is in the same style. It costs from £71 to £224, reduced from £79 to £249 (therug shopuk.co.uk). At Loaf, the Tufty in cream and white is down 50 per cent from £345 to £175 (loaf.com).

The Habitat Byron in dark and pale grey, orange and teal would add zing to neutral interiors; it’s down by one-third to £119.99 (argos.co.uk).

Faded antique-style rugs continue to be fashionable. La Redoute’s version in red and blue, pictured, is reduced by 25 per cent; from £59 to £230 (laredoute.co.uk).

Anne Ashworth

 

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Liverpool ONE welcomes Tessuti (GB)

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Grosvenor has announced that designer retailer, Tessuti, has opened its new global flagship store at Liverpool ONE, demonstrating the brand’s ongoing vote of confidence in the destination. The new location on Paradise Street follows Tessuti’s consistently strong performance at Liverpool ONE and spans two floors measuring 22,000ft². Boasting Tessuti’s biggest store to date, this is four times the size of the previous Liverpool ONE site. The store interiors have been styled with a subtle nod to classic Italian architecture whilst incorporating state-of-the-art technical features, combining classic design with an industrial-chic colour palette and cutting-edge digital screens. Working with local Liverpudlian digital and production agency Liquid, the new Tessuti store has exclusive instore stills and videos showcasing exciting campaigns; the first of which is rumoured to feature Liverpool stars Stephen Graham, Abbey Clancy, Miles Kane and Chelcee Grimes.

 

Aligning with Liverpool ONE’s community ethos, Tessuti’s new global flagship will also support the vibrant community in the heart of Liverpool, championing local businesses through collaborations, pop-ups, and in-store events.

 

Alison Clegg, Managing Director, Asset Management, Grosvenor, commented: “Tessuti’s commitment to Liverpool ONE, through its relocation within the destination and decision to make the new store its global flagship, strengthens our position as one of Europe’s leading retail and leisure destinations. The impressive growth trajectory of Tessuti within Liverpool is a great indication of the potential for success and expansion of other brands that join Liverpool ONE.”

 

Chris Rowan, Director of Brand & Customer Connection at Tessuti, added: “The opening of our global flagship at Liverpool ONE is a huge moment for us. Liverpool is an urban hub for international fashion retailers, so upsizing and relocating within the city’s leading retail and leisure destination was a natural next step. We feel confident that it is the ideal home for our flagship location, and are excited to offer Liverpool ONE’s visitors our most stylish project yet.”

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