Like in the UK, tax on foreign property rental income is a guarantee – even if you’re a UK resident buying overseas.
However, when it comes to foreign property tax, UK rules will essentially still apply.
You’ll be taxed on any of your foreign properties the same way as you would on any UK property.
For example, despite being located abroad, you’ll still be liable to pay UK capital gains tax on foreign property if you make a gain on the sale of the property.
The reasoning behind this is that the UK tax system taxes UK residents on their income and gains worldwide.
To cut a long story short, when it comes to income tax, you work out the total profit of your foreign properties as a whole – rather than as individual properties – by taking away any expenses from income.
However, a nice little caveat is that the first £1000 of your income from a rental property may be tax-free because of UK’s property allowance.
Allowable expenses – like interest costs – should be deducted from the income, with the profit then declared to HMRC in a self-assessment return. Although, there are some limits to how much tax relief is given for this.
Property expenses that are capital in nature don’t count as allowable expenses – though they will be deductible when working out any gain on the overseas property if it’s later sold.
If your overseas property is a furnished holiday let, on the other hand, slightly different rules apply – meaning that you’ll be able to claim capital allowances for investments against your rental income.
There may also be foreign taxes on foreign properties to be aware of, such as purchase taxes, income tax on rents, tax on sales and annual taxes related to the property value. There may also be local gift and death taxes to consider.
It is therefore vital to get advice on any local taxes from a tax expert in the area where the property is located.