Thanks to our in-country tax experts, we have created this list of key points to consider regarding taxation on any overseas property you own, including how rental income and capital gains are taxed and how to avoid double taxation. We hope you find this guide helpful and urge you to get expert help to manage your tax affairs more efficiently.
Your home country tax exposure on your overseas property may include income tax on the rental income, capital gains tax on property sales and inheritance tax when you leave the property for your children.
Tax burdens are sometimes higher in the country of residence than in the country where the property is located. While tax planning can be more complex when including an overseas property, it is still advisable to ensure you understand your tax liabilities and what can be done to reduce them.
Many countries, such as the UK, allow individuals to claim their overseas property as their primary residence for Capital Gains Tax purposes. Please note that generally, you are only permitted to have one primary residence. If you are married or in a civil partnership, you are only allowed one primary residence between you.
Generally, you will find that you will be taxed by the government of the country in which the property is located. The most common taxes are on property purchases, property sales, rental income, and gift or death taxes. You may also be asked to pay an annual tax on your property.
When claiming double tax relief, the foreign tax paid on your overseas property is excluded from the tax you due in your home country. It usually is not possible to get any repayment of foreign taxes due through a double tax relief claim.
Where the local tax on your overseas property exceeds your taxable income or capital gains tax in your home country, it might be wiser to claim the foreign tax as an expense. If it creates a loss, it can be carried forward for relief on future tax liabilities.
Essentially you have an overseas property rental business if you plan to rent the property. As with any business, you can claim tax relief on business expenses, including travel costs. Similarly, you can claim travel costs if you visit another country to view new properties against the rental income you get from your existing property.
Many countries apply a VAT charge on property purchases. The VAT rate can be as much as 20%. It may be possible to recover the VAT by leasing the property you just purchased to a hotel or rental operator. The property is considered a business, so that you can claim the VAT back. You will still be allowed to use the property for a few weeks in the year, and after a period, the property can be yours again. Trying to claim back the VAT would need to be weighed against the possibility of being hit with other taxes or higher rates.
Even if you don’t need to borrow money to purchase the property, getting finance on your overseas property can be an excellent way to reduce your tax obligations. Usually, your tax liability is limited to the net equity in the property.
When selling the property, you may have little capital gains in the local currency, but when the costs are converted into your home currency, there may be a substantial Capital Gains Tax exposure.
If you keep hold of the money in the local currency, it will still be a new chargeable asset from a Capital Gains Tax perspective. Also, you may be unable to offset any loss in a later tax year, so any foreign currency proceeds should be disposed of in the same tax year.
Tax authorities in many countries have considerable powers to seize assets and potentially imprison offenders. Make sure you meet you fully understand and meet your tax obligations.
Tax authorities in many countries have considerable powers to seize assets and potentially imprison offenders. If you want hassle-free overseas property ownership make sure you meet you fully understand and meet your tax obligations.
If you are thinking of joining the thousands of people who buy an overseas property each year it is essential you get the right legal and tax advice, we can connect you with recommended experts. Tell us about your overseas property plans?