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A Guide to Overseas Tax for Holiday Home Owners

Investing in a holiday home overseas can be a rewarding financial decision. However, many second home owners find the international tax requirements and foreign tax regulations rather complicated. If you are new to overseas property investment, it can be hard to find the correct information and get reliable advice.

When buying a property for rental purposes, you will probably be liable for tax in the United Kingdom and the country the property is located in. There are deductions available, which a financial advisor will be able to help with. Another thing to consider is the tax year, as it may start in a different month to the UK’s. Be sure to take expert advice to make sure you are aware of what is owed in council or municipal tax. With this in mind, below you will find a summary of the international taxes which are related when buying a holiday home overseas.

Regarding taxes:

  • You must declare any overseas rents to HMRC.
  • The tax authorities in the host country will be interested in the tax on rents there.
  • The property will remain as part of your Inheritance Tax estate.
  • You will have to pay Capital Gains Tax if you decide to sell the property.
  • You will not be able to reinvest in another property to avoid paying Capital Gains Tax.

UK Tax

Being a UK resident will mean that your worldwide income will have to be declared to HMRC, which will include any rental income you receive overseas. The rental income must be declared, but relief can be claimed in expenses appropriate to the rent, like a sensible proportion of mortgage interest, any maintenance fees or utility charges.

Tax abroad

When renting out a property in a foreign country, almost all tax authorities will want to know. Every country will differ, so it would be best to research this online or speak with our experienced team here at Prestige Property Group, who will ensure that you receive accurate and helpful advice.

If you do declare to the local tax authorities, be sure to show the paperwork to your UK accountant, so if you pay any overseas tax, you may get some tax relief in the UK as a result.

Inheritance Tax

Even though your property is outside the UK, it will still count as yours for Inheritance Tax purposes. There will be no avoiding Inheritance Tax even by moving overseas, often requiring severing your ownership of links to the UK, such as property.

Capital Gains Tax

As a UK tax resident, you will have to account for Capital Gains Tax if you decide to sell your holiday home. Capital Gains Tax is a tax on the profit that comes when you sell an asset which has increased in value; it is the gain that you make which is taxed, not the money you receive. For example, if you bought a home for £500,000 and sold it later for £520,000, this means you made a gain of £20,000 and this is what will get taxed.

Unfortunately, you cannot reinvest the profits from selling a house into buying another holiday home as this will result in a Tax Return or bill. If you sell your Spanish home for a £30,000 profit, then you have to pay tax on it – even if the entire proceeds were spent on another overseas property.

Property income

Income from a property which is located outside the UK does not form part of a person’s UK property business; instead, a separate concept of an overseas business will apply. An overseas property business will be treated as a single property rental business in the same case as it would be in the UK, such as all sources of income will be treated as deriving from the same single overseas property business.

This will mean profits and losses will have to be recorded and mirrored like a UK business. The profits and losses will be calculated in accordance with trading principles, with the crucial difference that an overseas property business is not usually treated as a trade.

Whether you are searching for Tuscany real estate for sale or just looking for some further information on what is involved when investing in an overseas property for rental purposes, our experienced team here at Prestige property Group will be on hand to answer any queries you may have.

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