How to reduce tax as much possible on rental income abroad?

JacobEdgar

Hello, I am UK resident but I have rental income from abroad, exactly Malta. I earn 15.700 GBP a year (more or less). According to the Maltese Law, I can choose to pay flat rate 15 % on rental income in Malta.

But then, is there anyway to reduce what I will have to pay to the UK tax? I am self employed. As far as I know, it seems it will be taxed at 20 %? My income from my self employed work is just 8559 GBP.

As far as I know, then UK and Malta have double taxation agreement? this means that I will only have to pay tax to one country, or I just won't have to pay twice on the same amount? so just 5 % extra?

As if I have to pay 15 %, and then 20 %, plus all the expenditure of repairs and so on, it is nearly not worth it.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6656593/how-to-reduce-tax-as-much-possible-on-rental-income-abroad

I can't comment in detail on the double taxation aspect, but in terms of your UK taxation, the rental income will not all be taxed at 20%.

You are self employed (sole trader) with an income of £8,559. I assume that figure is after all allowable deductions have been applied. That is below the standard personal allowance so will not attract any income tax liability.

You also have an income of £15,700 from the rental property. Again, I assume that is the figure after all allowable deductions have been applied.

The first £4,011 will utilise the remainder of your personal allowance.

The remaining £11,689 will be subject to income tax at 20% (assume you are in England, Wales or NI). Income tax arising £2,337.80

At most, the UK income tax will be 15% on the rental income as you had allowance to receive some of the income prior to be liable for income tax.

The above assumes you have no other sources of income and all standard allowances.

For the double taxation agreement, it can only reduce the UK income tax liability by to the extent that the income tax has already been incurred abroad. I am sure that someone else will be able to comment with more detail and accuracy than I can. I think I know how it works, but don't want to put incorrect information and create confusion.

DRS1

Have you thought about selling the place in Malta?

With those figures you are going to get caught by MTD in a couple of years.

Just so you know in the UK you can set off the cost of repairs (and other expenses) against the rent for tax purposes. Not sure about Malta.

From a double tax treaty point of view I suspect (but have not checked) that you will pay tax in the UK on the Maltese rent (less expenses) and can set off against that UK tax any tax you pay in Malta. Sometimes tax treaties specify what rate of foreign tax can be set against UK tax (and sometimes that is less than the actual rate of tax paid overseas) so you do need to watch out for that.

JacobEdgar

https://forums.moneysavingexpert.com/discussion/comment/81896269#Comment_81896269

Many thanks ;) . I didn't know about that. I've had tons of expenses, new water heater, new ACs, furniture, waterproofing, so that would bring it down quite a lot! the 8559 GBP is from last year, still don't know how much this year.

So, by the double taxation, if I pay 15 % to Malta (no expenses are deductible there) I would be left with 13365 GBP. Then I would declare this to UK and pay 20 % and whatever is the final amount after my 12,000 odd allowance?

https://forums.moneysavingexpert.com/discussion/comment/81896280#Comment_81896280

DRS1, I tried, but no luck. The offers were ridiculously low, and the rental income quite decent. In around 10 years I will have gained what they were offering me, of course, without counting tax yet.

Now I just need to know how exactly it works the double taxation.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81897628#Comment_81897628

"

I didn't know about that. I've had tons of expenses, new water heater, new ACs, furniture, waterproofing, so that would bring it down quite a lot! the 8559 GBP is from last year, still don't know how much this year.

"

Those expenses you mention sound like they are associated with the rental property.

The income you mention (£8,559) is what I understood to be from your sole trader activities.

Expenses from the rental property cannot usually be set against income from sole trader activities but only against the rental income activities.

IF all your activities were in the UK, you would have:

• Sole trader income (£8.6k) after allowable expenses connected with the sole trader activity. For the purposes of discussion, assume expenses are £1.6k so leaving a balance of £7k
• Rental income (15.7k) after allowable expenses connected with the property rental activity. For the purposes of discussion, assume expenses are £2.7k so leaving a balance of £13k
• Your total income liable to income tax would then be £20k (£13k + £7k)
• Deduct personal allowance, usually £12,570 leaves £7,430 subject to 20% income tax resulting in tax to be paid £1,486.
• ASSUMPTINS = England, no factors impacting your personal allowance.

As I mentioned upthread, I do not know how the double taxation and the tax already paid in Malta affects the tax liability in UK.

How have you prepared your SA returns in previous years?

I wonder whether you might benefit from a one-off comment from an Accountant. I know the total income is low so you might well say that you cannot afford that service, but there may be some pro-bono services that you can access via the likes of CAB or similar.

jennifernil

I believe you can read the double taxation treaty with Malta on line. My OH has a small pension from Norway and we were able to read about that agreement.

Depending on what it says, you may be able to pay tax only in UK, the usual convention is that you pay in the country in which you reside, but agreements will vary, so you need to ascertain that first.

Otherwise you declare the income here, claim what is allowed for expenses, work out the UK tax and then claim relief for what you have paid in Malta. You will need to prove that you have paid tax in Malta.

jennifernil

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

Try here

DRS1

You may want to read the notes for the foreign SA pages which are here

Foreign notes (2024-2025)

You should also check the rules on expenses. There are some HMRC videos on youtube like this one (though I don't think they are that helpful)

What costs can I claim for property repairs and maintenance?

There are also videos about Foreign Income like

Do I need to declare foreign income to HMRC? and

Double Taxation Relief and foreign income

saajan_12

https://forums.moneysavingexpert.com/discussion/comment/81897628#Comment_81897628

Many thanks ;) . I didn't know about that. I've had tons of expenses, new water heater, new ACs, furniture, waterproofing, so that would bring it down quite a lot! the 8559 GBP is from last year, still don't know how much this year.

Can you be clearer here: what is your self employed work that earned £8,559? Is your rental income of £15,000 the gross income? What expenses are against that (eg the water heater, furniture, agents, etc, not the tax you paid in malta)

DRS1, I tried, but no luck. The offers were ridiculously low, and the rental income quite decent. In around 10 years I will have gained what they were offering me, of course, without counting tax yet.

Maybe the property is just worth less than you're expecting. Any investment yielding ~7.2% will double in value over 10 years which is not uncommon for stocks & shares. So a 10 year gain equal to the value is not too surprising.

JacobEdgar

https://forums.moneysavingexpert.com/discussion/comment/81897655#Comment_81897655

Grumpy_Chap, well, obviously the rental activity is from abroad. The expenses for the rental property, for this first year, yes, around 2000 GBP.

This is my first year renting, so my previous Self Assesment was relatively easy, compared with my upcoming one, which will need tons of research still :( .

It is tempting to use an accountant, but I've heard a lot of horror stories of accountants which get it wrong, and in the end, as far as I can gather, you are the one liable if they commit an error, so as much as it is ridiculously complex and time consuming, I prefer to do it myself.

https://forums.moneysavingexpert.com/discussion/comment/81897689#Comment_81897689

jennifernil, thanks. I've read the relevant parts, and I seem to understand;

• I have to pay tax in Malta (which is 15 % of 15,700 GBP) so that is 2,335 GBP
• I have to report the full amount I earn to HMRC (15,700 GBP)
• When everything is filled up, somewhere in the declaration I will be able to upload the proof I have paid Malta Tax
• I will be able to deduct the 2,335 GBP I paid to Malta, of the total sum of tax payable to HMRC that is calculated over my 12,000 GBP allowance.

https://forums.moneysavingexpert.com/discussion/comment/81897772#Comment_81897772

DRS1;

Thanks for the links. Sound strange some of the rules about expenses (replacing furniture is included in another chapter?) and it seems improving property doesn't count as expense. But I suppose installing two new ACs is for sure a valid expense?

https://forums.moneysavingexpert.com/discussion/comment/81897844#Comment_81897844

saajan_12; I sell action figures online, and I do custom figures also. 15.700 is the gross income, yes. I haven't calculated yet the expenses, because I read that expenses were not deductible from Malta tax, and I foolishly thought UK would be the same, so I will have to check again everything. Around 2000 GBP I imagine.

I tried investing in stocks and it's not for me. I more or less broke even after losing quite a bit of time over it. I prefer to rent, it is more safe in my eyes, at least in Malta. After a few years I will still have the house, which also, keeps raising in value there.

silvercar

My understanding is you calculate the tax due overseas, according to the overseas country's rules. You then calculate the tax that would be due here, according to UK rules. Then if there is a double taxation agreement, you can deduct the tax paid overseas from the tax you owe in the UK and pay the difference.

It's complicated, not only by the different rental rules, but you need to do the UK calculation in GBP, whereas the overseas calculation will be in the local currency. You also have to allow for different tax years. The UK is fairly unique in having a tax year 5 April- 4 April, a lot of countries work on calendar years.