Tax Tips for Those Who Own Foreign Property

No matter which country you are moving to, you must have in-depth knowledge about that country’s tax system because every country has its unique tax system that applies to its locals and newcomers. In this article, we will provide you tax tips for your smooth journey to a new country.

1. Table of Contents

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   You are still a UK resident!

Despite moving to any country or gaining its nationality, you are still a UK resident, which means you have to pay taxes on your UK property. The other taxes include UK income tax, rental tax ,capital levy tax, and inheritance tax (IHT), including all the assets within the UK or outside the UK. All the assets are liable to you because you are a UK resident. So you need to consider the amount in your pocket before purchasing a foreign property because you will be paying tax to both country tax systems. So before a trip, it’s a warning to plus-minus all your amount before buying any property.

“You need to consider the amount in your pocket before purchasing a foreign property because you will be paying tax to both country tax systems.”

2. Main Residence Relief for foreign Holiday Homes

Your foreign property can be your main home for capital tax gains purposes while being a UK resident. A foreign property can become your primary residence by making an election within two years of buying the foreign property. So, It is important to check online capital gains tax and inheritance tax rates as per requirement. By making the election, you can exempt some capital gains tax on the foreign property from the UK capital gains tax.

One important tip is that you can select only one place as your primary residence. You can choose either the UK or foreign spot as your primary residence. If you sell your main house in the UK, it can backfire instead of benefiting you. Also, if you are married, both of you can select only one place as your primary residence. So, be careful before deciding on your primary home.

“A foreign property can become your primary residence by making an election within two years of buying the foreign property.”

You can enjoy having a foreign property if you make your foreign property your min residence for a short interval of time, like for a few weeks. As the primary residence is also exempt for the last three years of ownership, these few weeks let you buy three years. You lose one week’s worth of exemption on your main house but acquire three years of exemption of your foreign property. Doesn’t that sound amazing?

3. The Treasury’s expenses

If you have a foreign property and are renting it out, you have a source of income from abroad, and you are questionable for that specific reason. In other words, you have a foreign rental business. A tax relief on your business expenses can be claimed. It’s a clever move toward your travel costs into your tax relief because you are traveling for your business purpose.

“A tax relief on your business expenses can be claimed.”

4. The local taxes

You should be well aware of the country’s tax system in which you are moving. Like the UK has tax influence on everything either you are purchasing a property or selling it or renting it, the foreign country also has specific ratios of tax money. So if you are renting or buying a foreign property, you should be well aware of those particular ratios. Also, some countries have annual tax systems in which you have to pay tax even if you are neither living there nor renting it out. Inheritance tax might also tie a knot on this gift package of foreign property.

“If you are renting or buying a foreign property, you should be well aware of those particular ratios.”

If the foreign tax you are paying for any specific reason, like capital gains tax or income tax, becomes equal to the UK tax you have to pay, then you might get double tax relief in the UK due to that foreign tax. You may not gain any tax relief if the foreign tax is not compatible with the UK tax system. So, you have to consider each dimension before moving abroad or choosing it as your main home.

5. Double Tax Relief

Double tax relief allows you to minus paid foreign taxes from UK tax liability. You can’t get a refund; instead, you can utilize your already paid foreign taxes to claim a reduction in your UK taxes that needs to be paid. Reduce your UK taxes as maximum as you can by using your foreign taxes.

“Double tax relief allows you to minus paid foreign taxes from UK tax liability.”

What if your foreign tax is more significant than your UK tax? When the foreign tax exceeds UK tax liability, it is better to claim the foreign tax as an expense rather than double tax relief.  Sometimes in these situations, you have to encounter a loss. But these losses are temporary because they will be recovered soon, giving you some benefits in the future.

6. Foreign Exchange Tax Relief

UK taxpayers pay tax according to the currency of the UK that is pound sterling. When you fulfill your capital gains for foreign property and compares it with the UK tax amount, a difference in amount due to a difference in currency may occur. It means you might have substantial capital gains tax exposure in the UK.

Sometimes the foreign exchange rate goes in your favor if the currency rate drops for a foreign country. Like if you purchased a property that was worth 100,000 Utopian Dollars at a time when the exchange rate was 2 Utopian Dollars to pound. You had a purchase cost of £50,000 according to UK currency.

Now, you are in the mood to sell the property. You sell it for 120,000 Utopian Dollars. It means you have acquired a gain of 20,000 Utopian dollars. But the exchange rate is 1.2 Utopian Dollars. For UK capital gains tax purposes, your sale proceedings are £100,000, and a taxable gain of £50,000 has entertained you! You have gained a profit of 50,000 by utilizing the foreign exchange rate.

“You might have substantial capital gains tax exposure in the UK.”

Most importantly, the other country has its tax system, which will allow you to interact with them according to their requirement. Sometimes being a UK resident will favor your investment in foreign property, and you can get some reliefs regarding capital gains tax and some other tax, but it’s not the same everywhere. Like in UK you have to submit the death duty tax but of course there are some ways to reduce your tax as well. So it is necessary to take proper guidance before investing or purchasing from a tax consultant. Legend financial is always there for you!