UK & Overseas Tax for owners of property overseas
This article aims to provide an introduction to UK/ International tax issues for potential UK buyers or owners of property overseas. Hopefully this will give you the key questions to think about and ask when looking at property in a prospective country.
1. Don’t forget UK tax
Most UK buyers of overseas property are aware that they are likely to have to pay local property taxes in the country where they buy the property. Many overlook that they will have to pay tax in the UK as well.
Double tax treaties exist between countries to determine how and when income is taxed. Normally they provide that credit given in one country for the tax payable in another.
As a UK tax resident and domiciled individual you are liable on your worldwide income / gains and assets. You will receive tax credits in the UK for the taxes paid overseas in the country of the property. Those who are regarded as non-domiciled i.e. their permanent home is overseas may find it beneficial to claim this status to avoid UK tax on the property income if it is not brought to the UK.
2. Consider who is to own the property
Most UK buyers buy foreign property just in their own name or possibly jointly with spouse. However forced heirship rules which determine who will inherit your property on your death can mean that it might be better to own a foreign property in a company or trust. In some countries this kind of structure can also reduce or eliminate capital or wealth taxes payable on sale of the property or death of the owners. Depending on the country ask if it is possible to write a Will for your local assets to determine who will inherit the property on your untimely death. Be aware however that ownership via a company can lead to potential UK tax issues.
3. Transaction taxes
What rate of property tax (like stamp duty in the UK) will you pay on purchase of the property? In many countries these transaction taxes will be very high.
4. Income taxes on Rental Income
Most countries around the world subject property rental income derived from land in their territory to local income tax. There is often a slightly reduced tax rate for non- residents. The tax deductions available will vary from country to country and will not be the same as the UK.
Local property taxes are usually payable to the nearby municipality.
5. What Capital Taxes are payable on sale or death?
What taxes if any will you pay on any profit if you sell or gift the property?
Wealth taxes – some countries impose annual wealth taxes at a small percentage on your assets in the country. Does that apply where you looking to buy?
Most countries have a form of inheritance/ capital tax payable on death or gift of the property to individuals resident in the same country.
Remember to keep all the paperwork regarding the property including taxes in one file. Set up a digital location on your hard or client to store all the documents.
Your UK accountant or tax adviser (if you have one) will be able to introduce you to a suitably qualified tax professional in the country where you are looking to buy property. Planning in advance can clearly help you possibly minimise some the liabilities and understand when there likely to arise.
The comments above are for general guidance and not a substitute for detailed advice. It is recommended that readers seek help from a suitably qualified professional. Tax law changes often so seek advice regularly.