Interactive Investor

Malta offers investors a home away from home

21st December 2011 09:41

Faith Glasgow from interactive investor

The Foreign and Commonwealth Office says 38% of over-55s are planning to relocate abroad in the next few years, arguably to escape an increasingly dreary outlook, economic and otherwise.

The question is where to go.

The Maltese islands have long been a favourite of many Britons planning to retire somewhere warmer and hopefully cheaper. Malta was a British colony for more than 150 years until independence in 1964, and there remain strong links harking back to its strategic role in the Mediterranean campaign in World War Two and its defence by the RAF.

Even now, continuing 'Britishisms' such as the islands' Leyland buses and red postboxes, not to mention similar legal and property purchase systems, lend credence to the observation of Malta-based property consultant Simon Barnes that "the Maltese love the English people".

Malta is a small place: 400,000 inhabitants live on a cluster of three inhabited islands totalling just 122 square miles at the crossroads of the Mediterranean. But as Barnes points out: "Outside the limited tourist areas, it has a very solid population; everyone lives together so there's none of the 'them and us' expatriate mentality you find in many destinations."

There are other significant attractions for older people contemplating a leisurely new life, too. English is, unsurprisingly, widely spoken; the weather is lovely, with a year-round 'season'; crime is rare; there's a satisfyingly rich cultural heritage embracing Europe, the Middle East and North Africa; and flights back to the UK, taking just three hours, are plentiful.

Malta's healthcare service - another important factor for older residents - has a longstanding reputation for excellence, and that's been enhanced by a swanky new hospital. "Medical care is very good and very cheap here," says Barnes.

So Malta scores pretty highly in terms of quality of life. Indeed, in the recent International Living Magazine's annual Lifestyle Index, Malta came in as Europe's number one lifestyle location.

But for many retirees there are critical financial questions that will dictate their ultimate decisions.

One of the key considerations is the challenge of stretching a limited pension to fund an active lifestyle. Tax can make a significant difference here, as Chris Jones, director of taxation at Tolley's, points out.

"There are so many different tax rates in the UK, including direct and indirect taxes, which makes it difficult to plan ahead with confidence. Retiring abroad is made more appealing by the fact that many countries offer a flat rate of tax significantly lower than the UK's basic income tax rate."

Malta is certainly an attractive proposition for retired expatriates in tax terms. Tolley's LexisNexis tax team did some research looking at a number of popular retirement destinations, including Jersey, Guernsey, Gibraltar, Malta and France, from a tax perspective.

"Our top choice is Jersey, which has a very favourable climate and an equally appealing tax system, with no inheritance or capital gains tax and income taxed at a top rate of 20%," comments Jones. But it's very difficult to meet the requirements for permanent resident status. "Malta, in our opinion, therefore heads the list of alternatives."

Tax perks

The Maltese tax advantages include tax-free overseas capital gains. "So if you can live off capital you would pay no tax," observes Jones. Other tax benefits include the fact that Malta has no death duties and no property or council taxes (local councils are funded by block grants from the government).

Moreover, if you as a retiree qualify for the Residence Scheme - which requires that you are not employed or running a business - you'll pay income tax at a flat rate of 15%.

There are other requirements for the scheme: you need an annual income in excess of €24,000 or a total net worth exceeding €350,000, and if your application is approved you must either rent a home for at least €4,200 a year or buy a property worth at least €75,000 within the next 12 months.

However, there is something of a hiatus for retired would-be émigrés to Malta at present. On 11 April the Residence Scheme was suspended to enable the government to tighten up the rules.

The new system will involve several different residency schemes, including one for EU citizens; the minimum requirements for annual income and property expenditure are not yet released but are expected to be "substantially higher," according to Barnes.

Clearly, property prices and choice will be another deciding factor for many people. Malta is an interesting place to buy, as its small size plus the enforcement of strict planning laws limit supply. "Planning laws mean developers can only build on what has already been built on and increase it by a maximum of 25% every five years, so the landscape is largely unchanged," comments Barnes.

Indeed, adds Geoffrey Ciantar, operations director of estate agent Fine & Country Malta, "the supply and demand factors mean that Malta's property market remained largely unaffected during the global crisis".

New building is very limited, but there are a handful of large new developments comprising high-quality apartments. One such is Madliena Village, a gated hillside community of 85 three-bedroom, top-end apartments with terraces and spectacular views, about 10 minutes from the popular seaside districts of St Julians Bay and Sliema. Prices start at around €420,000.

Another popular option with foreign buyers is swanky Tigne Point, built on the brownfield site of the former barracks on a peninsula across the water from Valletta. The 30-acre, mixed-use development is described by marketing manager James Vassallo as "Malta's most ambitious property regeneration project". Properties currently available include a two-bedroom seafront apartment with a huge terrace at €600,000 and a large three-bedroom foreshore apartment at €650,000.

If you don't fancy apartment living, the choice is largely between 'townhouses' - limestone-built houses of character in old villages, with cool internal courtyards - or renovated farmhouses with pools and gardens in the countryside. A three-bedroom townhouse with a sunny courtyard in a desirable area will be priced at €400,000-€500,000, while villas and farmhouses are €600,000-plus.

"Prices do sound expensive - but because there is so little building allowed, good property is at a premium and holds its value. It's not unknown for properties to have doubled in value over a five-year period," says Barnes.

However, it's possible to pick up apartments in a converted house or smaller development for as little as €100,000 if you're on a tighter budget. One Malta-based property professional suggests that average-to-good, two or three-bed apartments in popular locations are in the €150,000-€250,000 bracket; buyers should expect to pay more for classier units in better areas and €350,000-plus for 'lifestyle' developments.

According to overseas property website The Move Channel, enquiries are up 11% from British people over the first five months of 2011, compared with the same period last year. But around 85% of enquiries are for property costing under £250,000.

In the end, despite difficulties posed by sterling's weakness and the prospect of tightened residency rules, Malta is one of the easiest and most welcoming destinations for disaffected retirees looking to escape Britain.

This article was taken from the August 2011 issue of Money Observer.

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