UK tax consequences of owning a property overseas

August 2007

If you live and pay tax in the UK you must declare rental income from overseas property lettings on the supplementary foreign pages of your tax return.

Things to bear in mind:

How much tax you pay depends on whether you are resident in the UK for tax purposes. The rules regarding who is resident or not for tax purposes are beyond the scope of this newsletter article - if you need advice regarding tax residence issues you will need to make an appointment.
If you are resident you must pay tax on any income from letting property you own abroad, whether or not you bring the income into the UK. (Unless you are resident but not ordinarily resident or domiciled here, when you can claim to be taxed only on the income remitted to the UK - the so-called Remittance Basis.)
If you have already paid tax abroad you can usually claim credit against the UK tax you will have to pay or deduct the foreign tax from your overseas rental income when you work out the profit on which you will pay UK tax.
If you own more than one property abroad then you can offset losses from one against profits from another but you cannot offset losses or gains from properties abroad against losses or gains made in the UK - these are taxed separately.
If you dispose of your property you may have to pay foreign tax and you may also have to pay UK capital gains tax, although where this is due you can usually get credit for any non-UK tax you have paid on the same gain. If you are resident/ordinarily resident and domiciled then you will be liable to CGT whether or not you bring the gains into the UK. If you are resident/ordinarily resident but not domiciled you will only be liable for gains you remit to the UK.

As you can see owning and/or letting property abroad can be a real minefield. Planning is absolutely critical. If you are considering a purchase or need to regularise the tax position of existing overseas property holdings make sure you get our best advice on all aspects.