Don’t Forget YOU’VE STILL GOT UK Tax To Pay! Arguably, this is more of a warning when compared to a tip, but it is essential to remember that any UK citizen individual buying property overseas is still exposed to UK tax on that property. This might include UK Income Tax on rental income, UK Capital Gains Tax on property sales, and UK Inheritance Tax on any foreign properties you leave to your kids.
The UK tax burden is often greater than any foreign tax liabilities, so it makes sense to undertake a UK tax planning for your international property. Lots of the same planning techniques that work very well on UK property can be used equally on foreign property, even though the overseas angle adds an extra sizing and brings both additional opportunities and extra pitfalls to be skeptical of. There is certainly nothing in the united kingdom tax legislation to say that a foreign holiday home cannot be a UK citizen individual’s main residence for Capital Gains Tax purposes. A holiday home can be treated as your main residence by making an election to that effect, within two years of buying the property generally.
You can get the best of both worlds, though, if you merely elect to take care of your international property as your main residence for a short period, say a week. So, how exactly does this help? Well, since every main residence is also exempt for the last 3 years of possession, week buys you 3 years that.
In other words, you lose one week’s well worth of exemption on your main house but gain three years (and weekly) of an exemption on your international holiday home. If you’re renting out foreign property, you have a foreign rental business. Like any other business, you’re entitled to claim tax alleviation for your business expenditures.
That includes any travel costs that you incur for business purposes. Furthermore, all foreign property rentals are treated as one business. Hence, for example, you could declare the price of heading to Dubai to look for a possible new local rental property against the rental income from a villa that you currently have in Spain.
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Most countries will taxes foreigners on any property they own in the country. Local taxes often apply to property purchases and sales and to rental income. Furthermore, you will often have to pay annual taxes on foreign property, if you do not rent it out even, and many countries have gift and death taxes also.
You are certain to get a double tax comfort in the united kingdom for any foreign tax on the same income or capital increases when the UK allows that the international taxes are broadly equal to the UK tax you are paying. Beware, however, that every country has a different taxes regime and not all are compatible with the UK tax system. If you suffer a foreign tax which is different in personality to any UK tax, or which arises when no UK tax is due, you might not get any relief for it in the UK.