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purchase of foriegn property- tax liable?

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andyn_3
andyn_3 Posts: 3 Newbie
in House buying, renting & selling
I am thinking of purchasing a holiday home in Spain, I do not intend moving to Spain but may let the property for holiday use. I have a full time job in the U.K. ( paying P.A.Y.E ). I will probably get a Spanish mortgage.

Do I need to notify the Inland Revenue of my purchase and am I liable to pay any income tax on the rental,even if I get payment in Euros and keep the money in Spain.

I know I am liable to pay Spanish taxes and have already got a NIF number.

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  • hopefulfooluk
    hopefulfooluk Posts: 2,441 Forumite
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    Hi Andy,

    I don't think so, no. You may have to declare it as an asset but I don't think it will be taxable by the UK.

    HTH,

    Chris
  • Ian_W
    Ian_W Posts: 3,778 Forumite
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    Not an accountant but have owned in Spain. Simple answer is YES.

    More complex answer is if you pay Spanish letting tax on all income [25% of gross letting income] you probably won't have a tax liability here because here you can offset your allowable running costs [inc mortgage interest] against income before arriving at the tax due. Then if you've made a "profit" you can offset your UK tax liability against letting tax paid in Spain [Double taxation treaty thingy].

    So you may well end up with a negative UK tax liability. With a UK holiday home [as opposed to a normal BTL] you you can set your loss against other tax [PAYE] but not with overseas property. But, I think, you can carry losses forward in case you do make a paper profit in future years.

    It also needs declaring for CGT when you sell - but again because of Spanish tax may not result in you paying any - but, hey, you haven't bought yet!!

    So in summary YES there is a liability and YES you must declare it [Gordon wants tax on your worldwide assets!!] - it's quite complex so get a UK accountant as well as Spanish Asesor Fiscal.

    PM me with an email address if you want more info & MORE IMPORTANTLY ENJOY YOUR PLACE IN THE SUN! :beer:
  • sukey13
    sukey13 Posts: 278 Forumite
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    I am sorry to disagree with hopefullfool but as a UK resident I believe you are taxed on your worldwide income... a reason we are leaving to leave UK.

    https://www.taxationweb.co.uk has a brilliant free advise forum. Hopefully someone more qualified could then answer this.
  • hopefulfooluk
    hopefulfooluk Posts: 2,441 Forumite
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    Sorry - hands up - my bad. Ignore what I said!
  • Natelle_2
    Natelle_2 Posts: 110 Forumite
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    You are classed as resident in the UK for tax purposes and any income you receive for the rental of property in Spain should be declared on your annual tax return. You are correct in that you will pay annual tax on your property value in Spain, as a non-resident, which will be dealt with by your fiscal representative in Spain. Whether you receive payment in Euros or in Sterling as I understand it is irrelavent, it is your taxation location that matters.
    You can of course claim the expenses of the rental property against the income, so any tax liability is only on the net income.
    My comments are based on personal experience.
    As an additional point for thought, you might like to consider the view that the market for holiday property investment in parts of Spain is becoming saturated. The number of weeks of rental is reducing, due to greater availability of properties than the market needs, and therefore your income to capital investment return may well be reduced.
    EJS
  • Ian_W
    Ian_W Posts: 3,778 Forumite
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    Natelle wrote: ... that the market for holiday property investment in parts of Spain is becoming saturated. The number of weeks of rental is reducing, due to greater availability of properties than the market needs
    Totally agree, particularly Costa Blanca area, there are many properties being offered on letting websites that have very few weeks booked even in Peak Season and very low rentals. However, in other parts of Spain [Canaries in my case] there is still a very healthy holiday let market - 44 weeks last year is pretty healthy in my book anyway!
    Don't take the word of EA's or Developers that you'll let x weeks a year [unless they offer a contract which your lawyer can check] it's probably Bullsh*t to sell the property. Don't RELY on letting to fund mortgage or running costs. Holiday lets are like any other business, research it beforehand and work hard. If it works it will pay all your exes and give you some spends - just don't rely on it to start with.
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