DFK UK & Ireland

Investing In Overseas Property?

August 2008

There are a number of issues that you should plan for BEFORE you buy property overseas. This applies to a second home or rental properties.

If you are resident in the UK for tax purposes you will not only have to consider UK tax law but also the commercial and tax legislation of the country in which you are purchasing property.

The following comments will provide you with a check list of the main points to watch out for. It is not intended to be conclusive.

Tax on rental income, and the basis of computing profits. (Note that in some countries tax is charged on the gross rentals, not allowing for any expenses)
Tax on capital gains and whether there is any arrangement for tapering of gains (which is still common elsewhere in the EU)
Inheritance tax or other death duties
Wealth taxes, whether levied annually or otherwise
Any form of stamp duty on transfer or purchase
The position regarding joint ownership of property between spouses, and whether any form of interspouse exemption exists for income tax, capital gains tax or inheritance tax.
In the EU the investor will also need to consider the need to charge VAT locally on any rental income – this would be necessary if the property is let as holiday accommodation and the rentals exceed the local VAT threshold. Note that the VAT threshold in other member states is generally much lower than in the UK.

Double tax relief

In general, any foreign tax paid in relation to income taxable in the UK would be allowed as a credit against the UK tax liability. However, if the liability to foreign tax exceeds the UK tax liability on that income, no repayment of foreign tax will be possible.

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