Expenses on foreign rental income

ZIgo123

Wondering if anyone can help with a tax question I have. I own a property abroad but am a UK resident. The property is a furnished vacation/residential rental that I earn income on. I therefore pay tax on income in Canada and the UK.

I’ve recently had the AC unit replaced in the property and in Canada it’s not treated as a typical expense/deduction, but ‘capital expense’, meaning I can deduct 20% of the cost annually over 5 years.

I understand that I also need to declare this expense on my UK tax return, just as I declare my income. My question is – do I declare this as a normal expense on my foreign income from property for the financial year it was purchased in, OR, is there a similar capital expense entry on the tax return like in Canada? On the UK tax return there are only entries for
- ‘allowable property expenses’.
- ‘capital allowances’ for non-furnished property
- and ‘costs of replacing domestic goods’
My guess would be to place this under the domestic goods category? Thanks for any insight.

unholyangel

It would fall under capital expenditure rules.

Domestic items relief would only be available if it was prohibited by the capital expenditure rules (and some other conditions that would need to be satisfied to be eligible)

00ec25

unholyangel wrote: »

It would fall under capital expenditure rules.

access to capital allowances depends on what OP means by "furnished vacation/residential rental"

if it meets the criteria of a furnished holiday let then yes, capital allowances on plant and machinery can be claimed

if it does not, and therefore it's merely a residential letting, no CA can be claimed and the issue becomes one of whether the AC is a replacement/repair (and therefore a revenue expense) or is an improvement/new installation ( and therefore a capital expense that must be deferred until the property is sold and CGT liability arises).


One thing is for sure, the profit under Canadian rules will not be the same as the profit under UK rules.

ZIgo123

Thanks all for your help. Yes it is a holiday let. I wrote residential so it wasn’t confused with commercial premises letting.

From the sounds of it this would typically mean I can claim capital cost allowance, however

On this website: https://library.croneri.co.uk/cch_uk/efhl/4-4

It says: In accordance with CAA 2001, s. 15, capital allowances are available on an ordinary UK property business, a UK FHL business, an ordinary overseas property business and an EEA FHL business. The relevant rules in respect of entitlement to capital allowances for UK FHL businesses and for EEA FHL businesses are contained in CAA 2001, s. 17 and 17B. These adopt the qualifying criteria for the commercial letting of FHLs in ITTOIA 2005 and CTA 2009.

This is reflected on the HMRC website, saying that Capital Allowance is for furnished EEA holiday lets.

So my my business is FHL but not in the EEA. Does this mean I actually can’t claim it? If so, is there another option for where to claim releif? This seems strange as there are some pretty big overheads in running and replacing capital items.

Thanks

unholyangel

You are correct a property needs to be in the UK or EEA to qualify as a FHL under UK tax rules.

Tbh I would contact HMRC and ask them - they might not always be accurate (especially with complex matters - they'll tell you the rules but they don't always explain how that applies to your exact circumstances) but if its wrong then they only have themselves to blame!

silvercar

Check whether there is an agreement between Canada and the UK, that if you have paid taxes over there you don't have to pay them again here. A lot of countries have this agreement.

Edit: There is an agreement between the UK and Canada so the double tax treaty means you don''t have to pay in both countries for the same thing.

https://www.gov.uk/government/publications/canada-tax-treaties