Is Spanish rental income taxable in the UK?
If you decide to rent out a property in Spain (or any country outside the UK) and you are resident in the UK, you will be taxed almost identically to property owners who receive rental income from UK investment property.
Income from multiple foreign properties is counted as one entity. You add together all your rental income, take away any allowable expenses and pay income tax on the remainder.
How much UK tax do I pay on Spanish rental income?
The rate of tax you pay on your profit from rental income from properties in other countries is your usual rate; 20%, 40% or 45%.
Exchange rates are a factor when you are calculating the UK tax. You should apply the exchange rate that was in effect when the rent was due to be paid to you.
The main differences between UK and property abroad are:
- The way the income is declared through self assessment; on ‘Foreign Property’ pages.
- Losses, rather than being aggregated against income from property in the UK, may only be offset against income from other overseas properties.
Claiming capital allowances for expenses
If you invest in your foreign property you won’t be allowed to claim capital allowances unless it is a fully furnished holiday let.
When you claim the annual investment allowance you can deduct the capital cost right away from your profits.
If not claimed relief is provided gradually over future tax years through the writing down allowance.
Making a loss on rental income from Spain
If you make a loss on one property’s rental income, you are allowed to offset it against other rental income; but only from other property you own abroad. Alternatively, you can offset a total loss against next year’s profits.
Be aware that losses from UK and foreign rental income are not interchangeable. In other words, you cannot offset a loss on UK property against a rental income from abroad and vice versa.
Paying tax on rental income from Spain
As you would expect, wherever you make income from letting property, that country will also require you to pay tax. But usually, this amount is deducted from the tax you owe in the UK so you don’t pay tax on the same income twice.
You need expert advice on tax laws for the country in which you own property. Each country’s differences can have quite an impact on many aspects of your financial situation, like inheritance of property and the corresponding tax owed.
Spanish rental income tax credit relief
Tax credit relief is a process that helps alleviate the issue of double taxation for UK resident landlords who earn rental income in Spain.
The tax authorities in both the country where the property is located and in the UK will impose taxes on rental income profits.
To avoid a double taxation scenario landlords can deduct the amount of overseas tax they have paid on their property income from their UK tax liability on the same income.
Do I need to declare Spanish rental income on a tax return?
Rental income from a property in Spain should be declared on a self assessment tax return in the UK.
It’s important to be aware that opting to be in or out of the non resident landlord scheme does not determine the criteria for completing a self assessment tax return.
If you don’t already submit a tax return you should register with HMRC who will then open up a self assessment record for you.
On your tax return there is a specific supplementary section called SA106 for foreign income and tax credit relief.
Tax return accountant for overseas rental income
When it comes to filing a landlord tax return it’s worth thinking about using a qualified accountant with expertise in rental income from outside the UK.
By working with an experienced professional in this field you can navigate the often complex rules surrounding foreign income and ensure that your income tax and capital gains tax obligations in the UK are minimised.
