If you are a resident for tax purposes you need to pay tax on any income you get from rental properties, even if those properties are outside of the country that you reside in. However if you are classed as a ‘resident’ but are either ‘not ordinarily resident’ or ‘not domiciled’, depending on your situation you may only be eligible for tax that you bring into the country.

Letting the Government Know

Many people think that because they own a property in a foreign country that their own countries tax laws do not apply.  This is wrong and generally speaking you will be taxed on any foreign rental income in exactly the same way as you would on any UK properties that you may own.

Preparing Your Tax Return

LIke a property that you may rent in your home country, you need to calculate your income and your expenses. There are a few factors that need to be considered when dealing with foreign property, including exchange rates and currency fluctuations.

You should convert your rental income on the day you receive it, using the exchange rate on that specific day, not when you complete the tax return. The same should be done for any expenses. There are a number of websites that can provide currency exchange rates on specific dates.

Expenses and allowances – what counts?

You are allowed to deduct the same expenses and allowances from foreign owned property as from UK property letting income. This could include travel expenses, property management fees and any non capital repair costs.

You can then declare all your income and expenses on the foreign property pages of your self assessment tax return.

Offsetting Losses

With the subprime crisis affecting not only America but all of the world, one thing not to forget is that any losses that you make from your foreign property can be carried forward to set against any future profits from your overseas properties. However  it is not possible to set  foreign property losses against any profits from property you have have in the UK.

If you have any overseas property and have a question regarding it’s tax implications, let us know in the comments below: