Could you owe tax on overseas properties income?
Over the past few months we have seen an increase in the number of people coming to us for advice regarding overseas properties. It seems that many holiday home owners are unaware that they may be liable for UK Tax on rent received from overseas properties, and often it is thought that reporting the rent in the foreign country is sufficient. This is not the case.
UK tax is due on income from an overseas property after the relevant expenses have been deducted and an annual tax return should be submitted to HMRC detailing this income. This applies for UK domiciles even if the rental income has not been brought into the UK.
To avoid double taxation, a credit is given against any tax due on this income in the UK, for any tax already paid on the same income in the foreign country. You therefore only pay the UK tax if it is higher than the overseas tax. Any additional UK tax would be due by 31 January for the previous UK tax year and this is the same deadline for the filing of the return.
An amnesty offered by the HMRC which allowed taxpayers to correct any omission errors on their part ended in September 2018. The preferential penalties for any outstanding tax payments also ceased and unfortunately, new legislation under the requirement to correct rules is now levying penalties of between 100% and 200% of the tax owed, in addition to the original late payment.
It is therefore important that anyone who believes that they may have unpaid overseas tax liabilities, should now urgently contact HMRC themselves, or seek professional help in order to minimize, where possible, the penalties due.
It is also worth being aware that should the property be sold, it is subject to capital gains tax at 28%, or 18% for a basic rate taxpayer, with the gain being calculated after deducting relevant costs of purchase and sale. Where the property was acquired in a foreign currency, the purchase price and net sale proceeds are converted to sterling, using the relevant exchange rates at the date of purchase and sale, which can also have a significant impact on the taxable amount.
If you would like any further information, please contact our friendly team on 01932 320800, email firstname.lastname@example.org , or visit our website www.everfairtax.co.uk and we will be happy to assist.