Introduction

UK residents and domiciled persons are liable to pay tax on overseas property because they are liable to UK tax on their worldwide income and gains, and they may be liable for overseas property tax as well. If you own overseas property and are a UK resident and domiciled for tax purposes, you should take care to report and pay any UK tax that arises on the rental income and any capital gains on a sale of the property.

If you are not domiciled in the UK you need to consider whether the remittance basis is available to you on your overseas property income and gains how to report that to HMRC and how to prevent double taxation. This article will touch on some of the key points when looking at tax on overseas property.

What is the law on tax on overseas property?

If the property is located overseas, you may still be liable to pay UK capital gains tax (“CGT”) on any capital gain on the sale of that property.

This is because UK tax law taxes UK-domiciled residents on all their income and gains, whether arising in the UK or overseas.

What is the definition of overseas property?

Overseas property is any interest in real estate situated outside the UK. For this purpose, it does not matter whether your ownership interest is by way of direct ownership in your name or indirect interest in real estate which is held via a trust or a nominee or the foreign equivalent.

Do you have to pay tax on the sale of a property overseas?

If the property is located overseas, you may still be liable to pay UK capital gains tax (“CGT”) on any capital gain on the sale of that property. This is because UK tax law taxes UK residents on all their income and gains whether arising in the UK or overseas.

Who do you pay the tax to?

The tax on overseas property is paid to HMRC, subject to any double tax relief for any local tax paid on the sale overseas.

Is it the local tax authority where the property is located or HMRC?

It can be both depending on the circumstances and on the terms of any applicable double tax treaty between the country where the property is situated and the UK.

Is capital gains tax payable on an overseas property?

In principle, the answer is yes, if you make a gain and are a UK resident and domiciled for tax purposes. Sometimes, principal private residence relief from CGT may be available on any gain on an overseas residence if the conditions for the relief apply.

However, this relief is unlikely to apply to holiday homes if there are only temporary periods of residence.

Do you pay inheritance tax on overseas property?

If you are domiciled (actual or deemed domicile) in the UK then any overseas property you own will normally form a part of your estate for UK inheritance tax or IHT purposes so that IHT will have to be paid on its value. If your overseas property is subject to forced heirship under its local law and you own it directly instead of via a company, then you will not be able to decide who inherits it in your will, and it may have to go to your legal heirs whether you wish that or not.

How is overseas rental income taxed in the UK?

UK residents are taxed on overseas property rental income in the same way as income from a property located in the UK. The first £1,000 of rental property income may be tax-free because of the property allowance for UK income tax. Allowable expenses can be deducted from the overseas property income in the usual way as for UK property, with any profit then declared to HMRC in your self-assessment return.

Allowable expenses can include interest and financing costs subject to certain limits to how much relief is given for this. Any property expenses that are capital cannot be set against rental income for tax purposes but may be deductible when working out any gain on the overseas property if it is sold later on. Completely different tax rules apply, however, if your overseas property qualifies as a furnished holiday let.

Can you transfer an overseas property between spouses?

In principle yes, subject to local transfer and other taxes.

Do you pay stamp duty on an overseas property?

SDLT and the Scots and Welsh equivalents do not apply to overseas property but many countries levy their property transfer and related taxes which in some cases are paid by the purchaser.

Can you claim losses on overseas rental properties?

Any losses on an overseas property can be offset against any other overseas properties or carried forward to set against results for future years for UK tax purposes. However, overseas property losses cannot be offset against UK property profits for UK tax purposes and vice versa: see PIM1020

Do you have to declare an overseas property on your tax return?

You must declare the rental income from an overseas property on the foreign property pages of the self-assessment form. (Form SA106).

How Can Cannon Chambers Help?

If you need help or advice relating to tax on overseas property, Cannon Chambers can offer you the services of a tax barrister with extensive experience in settling tax disputes with HMRC, acting for clients in compensation claims, as well as representation in legal action against financial advisers and introducers.

We can offer you the services of a direct access tax barrister at Cannon Chambers, authorised by the Bar Standards Board to do Public Access Work and litigation, which means that they can work directly with clients to deal with their tax affairs and manage HMRC tax investigations on their behalf.