Even if the uprisings in North Africa stop now, it could take a very long time before people seriously start thinking again about buying in emerging markets such as Morocco, Tunisia or Egypt’s Red Sea. So where else do you buy now that lies within two and a half hours flying time of London?

Those from the UK and colder climes looking for a home in the Mediterranean sunshine are realising now more than ever that Spain and France are more attractive investments.

Both are safe, politically stable and have sophisticated infrastructures, including comprehensive networks of motorways and high speed trains. There are some huge regional airports such as Barcelona, Bordeaux, Málaga, Nice, Palma and Toulouse serving the whole of UK with as many as forty scheduled and low cost flights a day.

Within a short drive from these airports it is easy to reach coastal properties, houses on golf courses and around tennis clubs, as well as homes on elegant country estates. For those who prefer ‘La España Profunda’ or ‘La France Profonde’ there are chateaux, country estates, fincas and exclusive houses in the open countryside to choose from.

Even in remote areas broadband internet access using WIMAX technology enables people to work thousands of miles away from their offices using e-mail, document scanning, digital dictation and Skype conferencing. The saving on an annual season ticket from Winchester goes a long way when compared with a weekly return fight from Málaga or Bordeaux to London, not to mention the benefits that a huge drop in stress levels and a massive improvement in life-style will bring.

Except in very remote areas, the tastes of British expats are catered for comprehensively in Spain by outlets selling the products of Marks and Spencer and Waitrose on the Costa del Sol. John Lewis is even launching a European delivery service in June. Every UK newspaper is printed locally and satellite TV and internet radio mean that you need never miss Downton Abbey or the Archers. Butchers and bakers pander to English tastes and you will find a wide range of English brands in many of the coastal supermarkets. The same is true in some parts of France, e.g., the Dordogne.

When it comes to the practicalities of daily life, most foreign residents in Spain prefer modern shops and services to the old ways. By living inland in the countryside but within 10 minutes drive of the coast you can have the best of both worlds. Because a stop has been put on rural development in Andalucía, country properties have appreciated in value. Why take six hours driving to Cornwall when in five you can be in Saint Emilion or Sotogrande?

Close to home
So what has changed? Not a lot. The sun still shines most of the time. You just get the same for a lot fewer Euros than you did three years ago. Investing in property abroad is like investing anywhere – it’s the timing that counts. The trick is to buy low and sell high. Those who are forced to sell now will be doing precisely the opposite. They will face a cut of 20-30 percent in the Euro price they could have expected three years ago. Their loss could be another’s gain.

But exchange rates count as well. If you sold for €1.5m when the exchange rate was €1.5 to the pound, you would have collected one million pounds sterling – two years later when a Euro was worth one pound, even after a reduction of €500,000 you would still have taken one million pounds home to the UK. Your Euro price would need to have fallen by a staggering 40 percent for you to lose just 10 percent in sterling.

What this proves is that the price is dictated not by the currency but by the market and as most of the market is British the pound sterling is very influential.

However events such as the collapse of Lehman Brothers have provided an opportunity to pick up bargains until the market wakes up to the facts. Properties are often offered with the benefit of an existing mortgage which the purchaser takes over and pays the vendor only the balance of the price. The Spanish banks are more cautious now than they were. The French banks have always been very cautious and risk averse, so they have, generally speaking, weathered the financial crisis better than their UK counterparts. They do not like lending more than 70-75 percent of the purchase price and like the Spanish banks invariably require interest and capital to be paid back over a fixed term.

Serious steps have been taken in Spain to eradicate corruption in town halls. In France, this has never been a serious problem.

The Spanish Government has come to its senses and reduced the gains tax rate from 35 percent. Capital gains tax (CGT) for non-residents is now only 19 percent and for residents 21 percent. Even the socialists have accepted that taxation is not always cost effective and have abolished the hated wealth tax. Non-residents who move to Spain to work can benefit from a special regime for five years under which tax is paid at a flat 24 percent and only then on income arising in Spain.

CGT in France for individuals resident in the UK (or indeed any other EU country, together with Iceland and Norway) pay capital gains tax at 19 percent. French residents pay tax at 31.3 percent and everyone else at 33.33 percent. Furthermore, the first sale of a French property by an EU national will be exempt from CGT if:

• He/she has been a French resident for tax purposes for at least two years at any point in time and is non-resident at the time of sale
• The property is not rented and was fully available to the owner from 1st January of the year preceding the sale. It should also be noted that for individuals and members of a civil company, e.g. Société Civile Immobilière (SCI), 10 percent of the gain is exempted from each complete year of ownership after five years. This means that from year six to year 15, the capital gains is reduced by 10 percent with the result that there is a total exemption after 15 years

With regard to wealth tax, the nil rate band is €800,000 and the first slice between €800,000 and €1,310,000 is taxed at 0.55 percent. The second slice is between €1,310,000 and €2,570,000 which is taxed at 0.75 percent. There are various slices above these figures, the top slice being everything in excess of €16,790,000 which is taxed at 1.8 percent. This tax is levied on all French situs assets held at 1st January of each year and EU residents must pay their tax on or before 15th July of each year. New residents in France are not liable to wealth tax on their worldwide estate (as are normal French residents) for the first five years (subject to conditions). President Sarkozy has been floating the idea that the nil rate band should be increased from €800,000 to €1,310,000 but this has not yet been adopted into French law.

For those retiring to Spain there is a beneficial fixed rate of tax of 21 percent on savings income and dividends. Inheritance tax in many regions is fixed at a flat rate of one percent where the transfer is between residents who are spouses or from a parent to his or her child. The tax rates are much higher if the beneficiary is not resident in Spain and punitive if the beneficiary is not related but the tax can be mitigated by reducing the equity by means of a mortgage.

In France, inheritance tax between husband and wife is fully exempt. Lifetime gifts between a husband and wife are taxed with a nil rate band of €80,724. Each child of a deceased owner of French property has a nil rate band of €159,325.

Number crunching
Paying in black or grey money is now a thing of the past, but nowhere is perfect and the pitfalls for the unwary are plentiful. Impartial advice is critical, as many who have relied on the lawyer recommended by the estate agent have learned to their cost.

In France, many estate agents will suggest that you deposit money with them and/or sign contracts which they have prepared and purchasers are often advised by the estate agent to use one notaire who can act for both the purchaser and the seller. Whilst this is legally possible it is unwise. There is rarely an advantage in having a local notaire and there is no extra expense to the purchaser. In France, the purchaser pays all the legal costs and taxes/stamp duty involved. The notaire’s fees are on a tariff. If there is one notaire, he takes the entire fee and if there is more than one the same fee is shared. You should be aware that the notarial profession has a monopoly on conveyancing and they are official state-appointed lawyers. Advice should be taken on the effect of the French forced heirship rules should the purchasers be unrelated, unmarried or married with children from different partners or from a previous marriage.

‘Joined-up’ cross border advice is essential – no good getting sold a brilliant tax saving scheme in France if it has catastrophic consequences in England or vice versa. A will under English law can cause trouble in Spain and the use of property holding companies calls for highly specialist advice in both countries as well as in the UK.

Linguistic skills are not enough – your professional advisers need to be able to explain what will happen abroad by comparing it with what you would expect to happen in the UK: it’s the unpleasant surprises you need to avoid.

Contact Jonathan Eastwood – Avocat (France) & Solicitor (England); Michael Soul – Abogado (Spain) & Solicitor (England)

Jonathan Eastwood and Michael Soul are English Solicitors and members of the Paris and Madrid Bar Associations. They practise as independent Advocates through their firms in Spain and France. They can be contacted in London through Wilsons Solicitors at 4 Lincolns Inn Fields London WC2A 3AA, Tel: 020 7998 0420 or by e-mail at mjs@spanishlawyers.eu.com (Spain) or jje@eastwoodlaw.eu (France)