Tax on property and rental income
Tax on overseas property
By Ian Robinson
Article 3 of 4
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're 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're 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're 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're 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.
Find out more: 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 can't 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.
Find out more: Which? tax calculator- check your tax bill with our tax calculator.
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.
Find out more: 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 (currently 20%) each quarter and pay it to HMRC (although, 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.
- Last updated: April 2016
- Updated by: Ian Robinson