foreign property tax liability

andyn_3

I am thinking of purchasing a property in Spain for use as a holiday home. I have no intention in the near future of leaving the U.K. and I have a fulltime job ( PAYE) paying the higher tax band.

Do I have to notify the Inland Revenue about my second property. I have already registered to pay Spanish tax ( I have a NIF number ) and will probably get a Spanish mortgage. If I rent the property in the future and keep all the rental income in Spain IN EUROS, am I liable to pay any income tax here in England?

Pinkleylandii

Hi

Providing you are UK resident, ie physically present in the UK for at least 183 days in a tax year or an average of 91 days or more a year, and you are ordinarily UK resídent ( habitually UK resident) and UK domiciled, then you are liable to UK income tax on your worldwide income on an 'arising' basis. If you are not ordinarily Uk resident or non UK domiciled, then the Spanish income would only be liable to UK income tax on a 'remittance' basis.

The foreign rental income net of allowable expenses is assessable to UK income tax under Schedule D Case V and is therefore required to be declared to the Inland Revenue on your Tax Return. If you don't currently get a Tax Return to complete, then the onus is on you to notify the Inland Revenue of this new source of income by 5 October following the end of the tax year the income was first received.

There is a Double Tax Agreement between the UK and Spain. I have not looked at it but it could well be the case that the Spanish Tax suffered would be an allowable credit against the UK income tax liability on this Schedule D Case V income.

Hope this helps.

John

telly-addict

You have two years from the purchase of a second property to elect which one is your principal private residence (PPR) for capital gains tax purposes. If you don't do this, the Revenue will look at the facts of which one you have lived in the longest, where registered to vote (more relevant if both houses in UK) etc if you sell a property and realise a capital gain. Relevant case is Griffin v Craig Harvey, s 222 (or thereabouts) TCGA 1992.

You need to consider which property, if either you are likely to sell in the near future as to which gain you want to be exempt - the gain on your PPR is ignored.