Tax on property and rental income Tax on overseas property
If you live and pay tax in the UK you must tell HMRC about any rental income you receive from your overseas properties.
Here, we provide a basic overview of how overseas property is taxed
How will I be taxed?
You are taxed on your foreign properties in the same way as you would be on any UK properties.
In short, you work out the profits for all your foreign properties as a whole (rather than as separate properties) by taking any expenses away from any income.
You can also apply any allowances such as capital allowances and the annual investment allowance that you are eligible for. You pay income tax on any profits at your normal rate.
When working out the UK tax, you normally use the exchange rate when the rent was due.
The remittance basis
If you are domiciled outside the UK or are not ordinarily resident in the UK, you can claim for your foreign income to be charged on the remittance basis instead.
This means that you are taxed only on the income received in the UK in the year.
This is an extremely complex area and you should consider seeking professional advice about the options available to you.
Go further: Financial advice explained - our guide explains what to expect when dealing with a financial advisor
Any losses from property abroad can be carried forward to set against profits from your overseas properties. You cannot set foreign property losses against UK property profits or vice versa.
Normally the foreign tax authorities will also charge tax on your letting profits. But you won’t pay twice – the overseas tax paid is usually deducted from the UK tax that is due.
Your tax return
You declare income from foreign properties on the foreign property pages of the self-assessment form.
Always get advice from a local tax expert when you buy abroad. You may be liable for foreign taxes such as purchase tax and income tax on rents. Many countries also have laws dictating who inherits the property if you die. You may remain liable for UK inheritance tax on the property.
Go further: Inheritance tax explained - this guide explains what inheritance tax and when you have to pay it
If you choose to let out your UK home while you live abroad, you pay income tax on the rent in the normal way, but there are special rules about how you pay the tax.
Your letting agent or tenant must deduct tax from your rental profits at the basic-rate (20% currently) each quarter and pay it to HMRC (though tenants who pay rent that's less than £100 a week don’t have to do this unless HMRC asks them to). You can then set off the tax paid against your tax bill when you complete your tax return.
Alternatively, you can apply to HMRC for approval to receive your rental profits with no tax deducted. In return, HMRC will ask you to complete a self-assessment tax return once a year to work out whether any tax is due.
- Call the Which? Money Helpline - speak to our experts about any tax queries
- Buying property abroad - our full guide to investing in overseas homes
- Saving on heating - top money-saving tips for reducing your energy bills