Tax on Overseas Property

If you're a UK resident buying property overseas it's important to consider the UK tax implications. Your domicile status will be of key importance as if you're a non UK domiciliary you'll be entitled to claim the remittance basis for overseas income and gains. This puts you in a priviliged posiiton as regards overseas property as you could rent it out and avoid UK income tax by retaining the income overseas. Similarly you could sell it and providing the proceeds were kept out of the UK no UK CGT would be payable. If you're a UK resident and UK domiciled you won't be able to claim the remittance basis and will instead be taxed on the arising basis. There are then three main taxes for you to consider. Income tax You'll be taxed on any rental profits. Note that this is profits and not income, so you can deduct all expenses incurred wholly and exclusively for the purposes of the letting. A common query here is travel expenses to and from the overseas property. Well providing you can show that these were solely for the purpose of the overseas letting they would be deductible. In practice if you've gone over for a few days the Revenue would be looking for an aopportionment between personal use and the (lettings) business use. You can also deduct other expenses of running the property. The rental income will be taxed as additional income in your hands and would be taxed at your marginal rate of tax. Capital gains tax When you sell the property you'll need to consider capital gains tax. This is essentially the difference between what you bought it for and what you sell it for. There are other expenses of sale and purchase that you can offset (agents fees etc) as well as enhancement costs for any renovation of the property. In terms of reliefs the main reliefs will be taper relief and the annual CGT exemption. Taper relief will reduce the gain according to the period of ownership up to a maximum 40% relief after ten years ownership. The annual exemptions will then apply to reduce the gain by (currently) £9,200 each. If there are any other capital losses you can set these off the gain as well. Inheritance tax The overseas property will form part of your estate for inheritance tax, BUT it's the net value that is taken into account. So if you have any mortgage secured over the property the value actually included in your estate may be minimal. If you have few other assets you will also have part of the nil rate band (currently £300,000) to offset against it. See our article on Buying overseas property with a company Overseas property tax is also looked at in our tax book,Non Resident and Offshore Tax Planning