Investing in Icelandic property

The country was badly stung by the 2008 global financial crisis but perhaps now is the right time to consider an investment in the tiny nation?

Iceland was one of the countries which suffered the worst from the 2008 financial crisis, with the whole country effectively going bankrupt.

Despite that, since then the country has seen a remarkable recovery, and as a result it may be worth reconsidering the investment opportunities in the Reykjavik market (with a population of only 320,000 smaller towns are probably not a great investment).

As a foreign investor it is worth considering a few facts about Iceland. Much to many people’s surprise Iceland is not an EU member, but like Norway it is a member of the EEA (European Economic Area).

The country had a mixed reputation with investors as a result of the Icesave dispute over whether or not the Icelandic government should repay the deposits of foreign investors that lost their holdings following the collapse of Landsbanki in 2008.

Despite this the nation has much to offer investors in the property sector, with the Wall Street Journal reporting in 2014 that the property market in Reykjavik was recently heating up.

The country has no particular laws limiting foreign buyers, with the Financial Times noting that most foreign buyers tend to be Americans.

EEA citizens enjoy the same rights as locals while foreigners must apply for permission from the government, but this is a legal formality and there is little sign that the government will expel or limit the powers of foreigners owning property in the country.

Stamp duty sits at 0.8 per cent, while taxes for those with investment properties will sit at a rate of 20 per cent for non-Icelanders. Capital gains tax if you come to sell a property sit at the same rate of 20 per cent. There is also a local property tax that varies on the size and value of the property but which cannot exceed two per cent.

Inheritance tax in Iceland is a mere ten per cent – compared to 40 per cent in the UK – something to consider for those looking to pass on their portfolio to their children.

The Icelandic rental market is overwhelmingly driven by locals, although you are likely to be able to get short-term holiday lets for those visiting for the delights of the Reykjavik nightlife.

As with any property investment, it is worth visiting Iceland, deciding where you want to invest and how much you want to spend before committing to an investment in the nation.

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