Tax on overseas property

How is overseas rental income taxed?

If you own a property abroad, or are living abroad and letting out your property at home, you won't escape a tax bill.

You're taxed on your foreign properties in the same way as you would be on any UK properties.

In short, you work out the profits for all your foreign properties as a whole (rather than as separate properties) by taking any expenses away from any income.

Unless you let a furnished holiday residence, you won't be able to claim capital allowances for investments against your rental income.

Instead, investments in the property count as capital expenditure, meaning they can be tallied up and offset against your capital gains bill when you come to sell the property.

You pay income tax on any profits at your normal rate.

When working out the UK tax, you normally use the exchange rate when the rent was due.

Tax on overseas property: the remittance basis

If you're domiciled outside the UK or are not ordinarily resident in the UK, you can claim for your foreign income to be charged on the remittance basis instead.

This means that you're taxed only on the income received in the UK in the year.

This is an extremely complex area and you should consider seeking professional advice about the options available to you.

• Find out more: financial advice explained - our guide explains what to expect when dealing with a financial adviser.

Claiming losses on overseas rental properties

Any losses from property abroad can be offset against other overseas properties or carried forward to future years if you make a loss overall.

You can't set foreign property losses against UK property profits or vice versa.

Don't get taxed twice on foreign property income

Normally, the foreign tax authorities will also charge tax on your letting profits.

But you won't pay twice - the overseas tax paid is usually deducted from the UK tax that is due.

Declaring foreign property on your tax return

You declare income from foreign properties on the foreign property pages of the self-assessment form.

• Get a head start on your 2023-24 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

Paying tax when you buy a property abroad

Always get advice from a local tax expert when you buy abroad. You may be liable for foreign taxes such as purchase tax and income tax on rents.

Many countries also have laws dictating who inherits the property if you die. You may remain liable for UK inheritance tax on the property.

• Find out more: Inheritance tax thresholds and rates - this guide explains what inheritance tax is and when you have to pay it.

Tax on a rental property when you live abroad

If you choose to let out your UK home while you live abroad, you pay income tax on the rent in the normal way, but there are special rules about how you pay the tax.

Your letting agent or tenant must deduct tax from your rental profits at the basic-rate (currently 20%) each quarter and pay it to HMRC (although, tenants who pay rent that's less than £100 a week don't have to do this unless HMRC asks them to).

You can then offset the tax paid against your tax bill when you complete your tax return.

Alternatively, you can apply to HMRC for approval to receive your rental profits with no tax deducted. In return, HMRC will ask you to complete a self-assessment tax return once a year to work out whether any tax is due.

If you're living abroad and buy a property in the UK without selling your overseas home, you could be liable to pay the stamp duty surcharge on the new property.

Since April 2021, overseas-based buyers of residential properties in England and Northern Ireland have been required to pay a surcharge of 2% on top of the normal rates. This applies on top of the 3% buy-to-let surcharge - so overseas residents buying an investment property will need to pay stamp duty at 5% more than the standard rates for UK home movers.

Check out our guide on buy-to-let and second home stamp duty for full details.