Overseas Property Purchase

[GPEL]

I'm in the final throws of purchasing a property to let out in the Algarve (no, I'm not using this forum to advertize its existence). My query is: does anyone have a handle on the tax implications of owning an overseas property to let out? Do I pay income tax to Portuguese Gov and then income tax to UK Gov on remainder? The purchase is speculative and goes ahead regardless so not a go/no-go factor, but still interested. If anyone is considering doing something similar please PM me; some invaluable lessons learnt along the way but the potential returns make it worth the risk (£300pw during peak season/£150pw during low season on interest only mortgage of £325pcm) as well as being a holiday home for us.

Might write one of those "10 lessons about buying property overseas" type books you see on ebay advertized at 50p each.

[plym77]

apologies for the delay, I have been away for a while.

As a UK resident you must report any rental profits on your UK tax return.

I am afraid I am no expert on Portuguese tax, however many countries don't operate in the same way as the UK and charge a form of 'wealth tax' which is charged on the 'expected rental value' - so I would do some research if I were you. There is a portuguese Double Taxation Treaty in place and whilst I haven't read it, it will likely say that you shouldn't be taxed twice on the income - so if you pay tax in one country then you should receive a credit in the other.

I would also consider whether you have any Principal Private Residence that may be available on the property. The rules are the same as this country, so if you do have periods of residence in the property, consider the merit of a temporary election (say 1 month... holiday perhaps?) on the home abroad, thus securing the final 3 years PPR exempt. This is of course only sensible if you are like to profit on the eventual sale, as if you are likely to make a loss (no-one of course intends to lose money on a purchase, but it happens!) then you will want that loss intact to possibly utilise in the future and PPR exemption will affect this. You should also remember that for the month that you elect the holiday home, that your own home will lose PPR Relief, although in reality of the course of a PPR home ownership, the gain that would be made on the one month chargeable may well be covered by Taper Relief and CGT annual exemptions.

I should point out that you cannot simply elect the property if you do not use it as your PPR at some point. The quality of residence must be there, as well as some actual residence.

An election must be made within 2 years of the new property becoming available. Elections should then be varied back to the priginal PPR - to ensure you don't perminently change the PPR!

I hope this helps

Kind regards

Sherena

[GPEL]

Very clear, thanks Sherena

[Selkirk]

Anyone looked at Malta or Cyprus? It's going Euro from 01/01/08. Malta has lower taxes and no IHT I believe.

[GPEL]

Having previously lives in Cyprus I did consider it but felt prices were too high and flights take 5 hours to sort out those irritating probs that need a hands on approach. Malta seems a bit untapped but shyed away for somewhere closer to get to.