Was having a look at the latest Polish deal in Swinoujscie, and was surprised to see in Neil Lewis' summary on Page 16 a statment suggesting that "Swinoujscie offers substantial capital growth opportunities over the next few years, but investors might probably be wise to look to sell on units after the initial price growth has calmed down." Neil, could elaborate on your reasons for this please? I'm sure you do have reasons tho it's at odds with PS's general strategy that purchases should always be looked at in the medium to ten year time frame, and rarely less. I appreciate there are exceptions, tho I'm wondering why this might be one, as all PS analysis for Poland points to rapid growth, slowing to around 12-15% p.a for the next 10 years. Cheers Dan

Hi Dan Good question. This comment is based on the patterns that we have seen taking place. Across Poland we've seen growth taking place much faster and much earlier. In capital cities - Warsaw and Krakow - we can see that growth slowing in some areas and picking up in others - but over all showing long term growth. In 3rd tier cities that haven't yet taken off - we expect a very rapid early phase growth. In a local city here in Spain (by comparison) I've seen property double in price in 5 years. However, after the initial growth, the 3rd tier cities will struggle to grow - or grow more slowly than the big cities. Here's why I believe this... 3rd tier city's economies are based on quality manufacturing jobs and low end service jobs (retail or back office work). These salaries will increase but not at the rate of service businesses in capital or regional capital cities. Therefore, 3rd tier cities reach an affordability ceiling - after which it is hard to grow without the jobs mix changing quite a lot - which takes a long time. Whereas, regional capitals retain head offices and other jobs where the salaries can grow much faster. So, starting with a 'lag' 3rd tier cities will catch up much faster but then reach a ceiling much earlier. That is why the pattern we are seeing is 10 years growth in just 3 to 5 years. The point is that if we are right, then in 3 to 5 years you might take your substantial profits and move them to either a regional capital or another 3rd tier city in another soon to emerge country. This makes this deal more of a short term capital growth play than a long term hold. That is correct and is what makes it a bit different from many of our other deals to date. Cheers Neil

Thanks Neil This is interesting and good to know. It has a few implications given the 10% Polish CGT payment on the property's entire value if sold within 5 years, but let's hope the initial spurt of growth is adequate to lessen this. Can you tell me, is this '10% Polish CGT payment if sold within 5 years', able to be offset against the 40% CGT payment required by the UK authorities? I understand that Poland / UK have a double taxation agreement, but I don't know whether this 10% payment would fall outside of it, as perhaps it's classed differently. I bought in Katowice recently. I paid about 60K, at about 4000zloty per sq. metre, or about 70K inc costs. So let's look at a couple of scenarios.... Let's guesstimate that in 3 years prices in Katowice prices are 8000 zloty per sq.metre, and I decide to sell. My property is now worth double its original 60K cost, so 120K. I think that's an awful lot in a city where people earn maybe 1000 Euros a month. Anyway, let's say I do manage to sell. After 3% agent selling costs I'm left with 116,400K Scenario 1 - the 10% Polish CGT can't be offset. 10% of entire sale cost to Polish tax authorities (12K) leaves me with 116,400K - 12K = 104,400K So the profit is 104,400 - 70K = 34,400K. Now I need to pay the UK tax authorities 40% of that so 34,400 - 40% (13,760) leaves me with final pocketable profit of 20,640K Scenario 2 - the 10% Polish CGT can be offset. After 3% agent selling costs I'm left with 116,400K 10% of entire sale cost to Polish tax authorities (12K) leaves me with 116,400K - 12K = 104,400K So the profit is 104,400 - 70K = 34,400K. Now I need to pay the UK tax authorities 30% of that so 34,400 - 30% (10,320)leaves me wtih final profit of 24,080K. Obviously, these calculations are v basic. None of this takes into account rentals, equally it doesn't take into account voids. But at the very best, I think we could maybe..nearly...perhaps cover ongoing mortgage / letting / management / maintenance costs if we're lucky and the properties rent very well. But I think it shows pretty clearly that these investments have to perform staggeringly well to make a decent profit, cos when you do the sums, suddenly a 70K purchase which doubles in value in just 3 years leaves you with just around 20K profit. I don't say this with any anger or surprise in terms of the quality of the investments you offer and none of this is aimed as a criticism at PS, but I think it illustrates really clearly a couple of things... - that really we all need our investments to at least treble or quadruple in value before it really becomes worth taking profit. and more to the point... - that after tax there's no fast money in property, because clearly you have to roll your profits into more and more property to avoid beind stung, and stack it high as you can over decades to succeed. I guess that rules out giving up the day job for a while yet! Best Dan

Hi Dan Polish tax rules changed on 1st of Jan - you no longer have to hold for 5 years - and there is a fixed amount to pay on the 'capital profit'. I THINK this is 19% - but is is some small amount like this. So, no, the calculations don't work as above any more. Cheers Neil ps. I have to rush to catch a plane - but search on the site for 'polish tax' I'm sure we published an article on this at the beginning of the year?

Hey Dan Your calculation of the offset tax looks a bit funny to me anyway. Saying your net sale price was 116k and your all up acquisition price was 70k as you did then to me: 10% of full sale price (Polish) is 12k CGT for their tax lot. Brits CGT = 116k-70k = 46k profit x 40% (using the top tax rate you used) = 18k CGT, but you have already paid 12k in Poland so if it is offsettable then it is only 6k more to pay..so much better than your example presuming the offset is valid. Better still, be a non domicile like me and don't worry about the Brit CGT:)

No CGT is applicable for UK resident non-domiciled individuals - providing you don't remit the gain made overseas back to the UK. Cheers, Dave.

Dave, In context of your reply what do you mean by non-domicile.

Domiciles a little funny to define but as initial guideline, not born or bought up in the UK would tend to make you non domiciled in the UK even if you are a tax resident. Thats why the Sheiks and Russian oil barons love it here so much... So someone like me from NZ is non domiciled in the UK, so am not liable for CGT on Europe investment buys as long as i don't bring profits back to the UK, (NZ has no CGT so no concerns there either). I am of course still in the same CGT boat as everyone for British property.