If you’re a British expat living overseas, you may be registered as a tax resident in your new country while still owning rental property in the UK. You might even hold rental properties in other jurisdictions, perhaps as part of a portfolio of holiday homes to let.
Managing these assets can be rewarding but can also be complicated. Tax laws, reporting requirements, and succession rules vary widely between countries, and staying compliant can be challenging – this is where Ambient can help.
We have international and cross-border financial planning expertise and can help you navigate complex rules regarding overseas rental properties, ensuring your rental income works for you, rather than against you.
Read on to find out four key considerations when letting property overseas.
1. Multiple reporting requirements
When you own rental property overseas, you will likely have reporting requirements in more than one country. This means you may have a legal obligation to declare your rental income to the tax authorities both where you live and where the property is located.
In most cases, the rules work like this:
- In the country where the property is located – You must report your rental income to the local tax authority, usually via an annual Income Tax return. Each country has its own definition of taxable income, allowable expenses, and filing deadlines. For example, Spain requires non-resident landlords to file annual returns on rental income.
- In the country where you are a tax resident – As a resident, you are normally required to declare your worldwide income, including rent earned from overseas properties. This applies even if you’ve already paid tax in the country where the property is located.
- Annual declarations of foreign assets – Some countries (like Spain with its Modelo 720 form) require residents to declare ownership of overseas property or bank accounts above certain thresholds.
To stay compliant, it’s important to keep detailed records of rental income, expenses, and property ownership documents, and to file any returns according to local deadlines, which may differ.
A financial planner familiar with cross-border management can help you complete the relevant paperwork and ensure nothing is missed.
2. Taxation challenges
Tax is one of the most complex aspects of owning property abroad.
For example, if you sell an overseas property, you will normally have to pay Capital Gains Tax (CGT) in the country where the property is located. However, as a tax resident elsewhere, you may also have to declare and pay CGT in your country of residence.
While reliefs or exemptions often exist to avoid double taxation, they only apply if you follow the correct reporting and claim procedures. Missing a step can mean paying more tax than necessary or paying a penalty for underreporting.
Understanding local Inheritance Tax (IHT) rules is also important for estate planning purposes. Rules vary widely between countries, and in some cases, your estate could be exposed to both UK IHT and local rates. So, it’s important to plan carefully or your beneficiaries could face unexpected taxes or even disputes over ownership.
There may also be other property taxes due that are specific to that country. For instance, transfer taxes – such as Stamp Duty – can vary widely, and it’s important to be aware of the local rates.
3. Mortgage issues
Many countries have limits or restrictions on lending to non-residents or impose stricter eligibility criteria, which can make accessing a mortgage more challenging. Even where mortgages are available, you may face higher interest rates, larger deposit requirements, or shorter repayment terms compared with local buyers.
These differences can have a significant impact on affordability and your long-term returns, particularly if you’re using the rental income to cover repayments. It’s also important to be mindful of currency fluctuations, as exchange rate movements may increase the cost.
A financial planner can help you compare costs, assess lending criteria, and ensure that any borrowing strategy aligns with your broader financial goals.
4. Insurance and protection
Owning property overseas comes with risks that need to be properly protected against. Without the right insurance, you may be left vulnerable if something goes wrong.
While buildings and contents insurance may seem straightforward, policies can vary, and local insurers may not offer the same level of cover that you’re used to. For example, flood or earthquake protection may require additional cover depending on the region.
If the property is rented out, it’s important to have landlord insurance in place. This can cover risks such as tenant damage, unpaid rent, or legal expenses.
A financial planner familiar with local markets can help ensure you have the right level of protection in place, tailored to both the property and the rules of the country.
To speak to a financial planner with cross-border expertise, get in touch.
Email contact@ambient-wm.com or call us on +34 658 077 450.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.