If you live and pay tax in the UK you must declare rental income from overseas property lettings on the foreign pages of your tax return. If you pay foreign tax on the income, you can usually get credit for this against the UK tax you have to pay on it.
Declaring income from overseas property lettings
You have to declare any income you get from overseas property lettings on the supplementary foreign pages of the Self Assessment tax return.
How much tax you'll pay depends on whether you're 'resident' in the UK and 'ordinarily resident' or 'domiciled':
Resident
- if you're in the UK for 183 days or more in a tax year, you're a 'resident' for that year for tax purposes
- if you come to live in the UK permanently or to remain for three years or more you're resident from the date of arrival
- you're also treated as resident if you're in the UK for an average of 91 days or more in a tax year (worked out over a maximum of four consecutive tax years)
Ordinarily resident
- if you're resident in the UK year after year you will normally be treated as 'ordinarily resident'
- you're treated as ordinarily resident in the UK from the date you arrive if it's clear that you intend to stay for at least three years
Domiciled
- your domicile is normally acquired at birth but domicile is a general law concept, decided by a range of factors
If you are resident, ordinarily resident and domiciled in the UK
If you're resident, ordinarily resident and domiciled in the UK, you'll have to pay tax on the income from the letting whether or not that income is brought into the UK. This is known as the 'arising basis' of assessment.
Working out your taxable profit
As with income from a UK rental business, you normally work out the 'net profit' (or loss) for all your overseas property lettings as if it's a single business. To do this, you:
- add together all your rental income
- add together all your allowable expenses
- take the expenses away from the income
To arrive at your taxable profit, you can deduct certain allowances from your net profit. Your final profit counts as part of your overall taxable income, and you pay tax on it at your normal rates.
Expenses and allowances – what counts?
You can deduct the same expenses and allowances from overseas property letting income as from UK property letting income, including travel costs. (The expenses must be solely for running your property letting business.)
Profits and losses from different overseas properties
Because all overseas property lettings are treated as a single business, losses from one overseas property are automatically offset against profits from the others. And if you make a loss overall, you can offset it against future years' overseas rental profits.
But UK and overseas letting businesses are taxed separately – losses from one can't be offset against the profits from the other.
For more information visit www.direct.gov.co.uk
