With the rise in popularity of buying holiday homes or rental properties abroad—particularly in sunny destinations like Spain, Portugal or Greece—many UK residents are entering the world of international real estate investment.
But what are your tax responsibilities in the UK when you earn income or capital gains from foreign property? Here’s what you need to know:
1. You Must Report Foreign Income to HMRC
As a UK tax resident, you’re taxed on your worldwide income. This means if you earn rental income from a property abroad—say, a villa in Spain—you must declare this income on your Self Assessment tax return, even if you already paid tax on it in the country where the property is located.
2. Double Taxation Relief May Apply
The UK has double taxation agreements with many countries, including Spain. If you pay tax on rental income abroad, you may be eligible for relief in the UK—so you’re not taxed twice on the same income. However, it’s important to declare everything correctly to benefit from this relief.
3. Capital Gains Tax (CGT) on Overseas Property Sales
If you sell your overseas property and make a profit, this gain is subject to UK Capital Gains Tax. The same reporting rules apply as with UK-based assets, including the use of your annual CGT allowance and possibly paying the gain at 18% or 28% depending on your income level and the nature of the property.
4. Foreign Property and Inheritance Tax (IHT)
Your foreign assets—including overseas property—are included in your estate for UK Inheritance Tax purposes, even if you’re not domiciled in the UK permanently. This often surprises people who assume foreign property is outside the scope of UK IHT.
5. Currency Fluctuations and Record-Keeping
Rental income, expenses and sale proceeds must be reported in pounds sterling, using HMRC’s accepted exchange rates. It’s important to maintain accurate records, including dates, values and receipts in both currencies.
How Lucas Prestige Accountants Can Help
Whether you’re generating rental income from a holiday flat in Alicante or planning to sell a second home in the Algarve, we can help you stay compliant while maximising any available tax reliefs. Our experienced accountants can:
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Handle complex Self Assessment filings
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Apply relevant double taxation reliefs
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Calculate capital gains accurately
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Ensure currency conversions are correct
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Plan ahead for inheritance implications
Owning property abroad can be a fantastic investment—but only if your UK tax affairs are in order.