Foreign home - Tax on income
Discussion
I'm thinking of having a small house in Spain to live in for part of the year (maybe 2 or 3 months in total) and use as a rental income vehicle for part of the year.
I'm employed in the UK and am paid through PAYE.
I know the income from the property rental will be taxable but who gets to tax me?
(1) Spain as that's where the income is generated? Would there be a tax free allowance and what tax rate %?
or
(2) UK through Self Assessment as I'm a UK resident and tax payer already?
or
(3) Both countries want a slice of the action?
This is just thoughts at the moment but the answer will change the viability of the project to wash it's own face.
I'm employed in the UK and am paid through PAYE.
I know the income from the property rental will be taxable but who gets to tax me?
(1) Spain as that's where the income is generated? Would there be a tax free allowance and what tax rate %?
or
(2) UK through Self Assessment as I'm a UK resident and tax payer already?
or
(3) Both countries want a slice of the action?
This is just thoughts at the moment but the answer will change the viability of the project to wash it's own face.
Normally both, but double taxation treaty kicks into limit the damage
For sake of illustration. Say that you get 10,000 euro income, and Spain tax you at 20% basic rate with a 5k tax free allowance = 1000 tax to them
But you are a 40% taxpayer in the U.K., so they want 4K from you. You show them proof that you have paid 1000 to Spain already, and now you only need to pay the U.K. 3K (assuming double tax treaty in place)
For sake of illustration. Say that you get 10,000 euro income, and Spain tax you at 20% basic rate with a 5k tax free allowance = 1000 tax to them
But you are a 40% taxpayer in the U.K., so they want 4K from you. You show them proof that you have paid 1000 to Spain already, and now you only need to pay the U.K. 3K (assuming double tax treaty in place)
You are a UK tax resident, which means that you are taxable in the UK on your world wide income. That includes PROFITS on rents from overseas properties. If you don't generate a profit, you don't pay tax.
If you have to pay Spanish Income Tax on the rental income, that tax will be offset against any UK tax arising from the rental profits of the property.
If for some reason, the property generates a charge to Spanish Income Tax but not UK Income Tax - tough. This can happen because tax rules on how income is assessed from a particular type of income will vary from country to country. You should find out what type of Spanish Income Tax is paid on Spanish rental income and how it is calculated.
If you have to pay Spanish Income Tax on the rental income, that tax will be offset against any UK tax arising from the rental profits of the property.
If for some reason, the property generates a charge to Spanish Income Tax but not UK Income Tax - tough. This can happen because tax rules on how income is assessed from a particular type of income will vary from country to country. You should find out what type of Spanish Income Tax is paid on Spanish rental income and how it is calculated.
Holiday rental laws are devolved to the local govt in spain. Some local authorities are starting to make it very difficult. I had a property in Mallorca and you needed a licence, had to collect tourist tax and file a quarterly return. 25% tax rate on income, they don't allow you to claim any expenses against taxable income from holiday letting. The balearic govt also completely banned holiday lets in some areas. The govt have no idea why local businesses are suffering and are blaming turkey being popular again!
Wasn't worth it for us. Go in eyes open and get some local legal advice that isn't connected to an estate agent!
Wasn't worth it for us. Go in eyes open and get some local legal advice that isn't connected to an estate agent!
You need to check that what I am about to say is correct - but I was on a tax course this morning and one of the points was that Spanish property lets owned by UK taxpayer suffer 19% Spanish tax on the letting profit (ie after deductions for expenses). But once we leave the EU, this will change to 24% on the letting revenue (ie, before any deduction for expense). So much much higher
oop north said:
You need to check that what I am about to say is correct - but I was on a tax course this morning and one of the points was that Spanish property lets owned by UK taxpayer suffer 19% Spanish tax on the letting profit (ie after deductions for expenses). But once we leave the EU, this will change to 24% on the letting revenue (ie, before any deduction for expense). So much much higher
I believe this is correct.oop north said:
You need to check that what I am about to say is correct - but I was on a tax course this morning and one of the points was that Spanish property lets owned by UK taxpayer suffer 19% Spanish tax on the letting profit (ie after deductions for expenses). But once we leave the EU, this will change to 24% on the letting revenue (ie, before any deduction for expense). So much much higher
There’s also a difference in expenses that can be deducted by an EU resident national vs a non EU resident national. Get Brexit done.
Regardless of my own Brexit opinion, it does amuse me the amount of bigoted older generation ex-pats in my locality that champion a return to the Great Britain of old (whilst immigrants of Spain) and are now seeing the direct consequences of leaving the EU such as the uncertain healthcare position and the tax increases such as this.
Shnozz said:
Regardless of my own Brexit opinion, it does amuse me the amount of bigoted older generation ex-pats in my locality that champion a return to the Great Britain of old (whilst immigrants of Spain) and are now seeing the direct consequences of leaving the EU such as the uncertain healthcare position and the tax increases such as this.
^^ Yup, that's my experience too. They live in Spain, vote for Brexit and will then complain about the inevitable consequences...Again many thanks for all the input. The rise to 24% mentioned above along with other factors puts a large shadow over the idea.
I also think most British in Spain have a unique idea of their status there. They see themselves as “Ex-Pats” not foreigners as they view foreigners in the UK. The Spanish are lucky to have them and they’ll only pop back to Blighty to use the NHS.
It takes all sorts...........
I also think most British in Spain have a unique idea of their status there. They see themselves as “Ex-Pats” not foreigners as they view foreigners in the UK. The Spanish are lucky to have them and they’ll only pop back to Blighty to use the NHS.
It takes all sorts...........
mywifeshusband said:
Again many thanks for all the input. The rise to 24% mentioned above along with other factors puts a large shadow over the idea.
I also think most British in Spain have a unique idea of their status there. They see themselves as “Ex-Pats” not foreigners as they view foreigners in the UK. The Spanish are lucky to have them and they’ll only pop back to Blighty to use the NHS.
It takes all sorts...........
They do see their status as something very different to how they view immigrants in the uk. That said, there are complex arguments around all of it to be honest. The uk immigrants to Spain have indeed injected a HUGE amount of money into the economy, especially on the Costas. The Scandinavians are now doing similar, if not with even larger wallets. I also think most British in Spain have a unique idea of their status there. They see themselves as “Ex-Pats” not foreigners as they view foreigners in the UK. The Spanish are lucky to have them and they’ll only pop back to Blighty to use the NHS.
It takes all sorts...........
There is no doubt is has provided a massive income boost to Spain but at what cost to locals? Rampant inflation on every from houses to meals out brought about by foreign money doesn’t do any favours to a nation who have extremely high unemployment and low salaries for those lucky enough to have a job.
Aldos Army said:
would the situation be the same if the property was based in the USA?
Yes, same thing.It's essential for ex-pat property buyers to register with the IRS and pay US taxes - this typically means completing both Federal and State tax returns and paying all tax demanded. Taxes paid in the US can be credited against any UK tax liability on income or capital gains.
When a property in the US is sold there's a 15% "withholding tax" deducted by the selling realtor and paid over to the IRS. That's not 15% of your capital gain - it's 15% of the selling price. A properly registered ex-pat taxpayer can reclaim that 15% withholding tax subject to deduction of any capital gains tax due or outstanding income tax. Anyone who's not registered loses their 15%.
http://www.tdflorida.com/firpta-sale-of-us-propert...
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