UK & Overseas Property Business: Tax Rules You Need to Know

Welcome to this week's I Hate Numbers episode.

Now in this week, I'm gonna be talking

about property with particular reference

to property that might be owned, not just in

the United Kingdom, but also overseas.

Now, if you've got rental income in say,

Birmingham, Leicester, Barcelona, or all three.

And this episode is for you.

Now, if you are thinking one property business

covers everything, covers all the properties,

again, unfortunately, you're gonna have to

rethink that thought.

Now, let's clarify.

If you've got property income in the United

Kingdom and property income overseas, you

are essentially from the HMRC perspective,

running two separate property businesses.

It may not feel like it, but that's the rules.

Now, if you've got just one house in Manchester.

One flat in say Milan, HMRC will treat them

differently and you know what's gonna happen

if you get it wrong, it's gonna cost you.

So let's crack off.

Firstly, what is the idea of a UK

property business?

Now, that's anything you rent out there,

that could be houses, flats, shops, holiday

homes, all of it counts.

It could be a buy to let in Leicester.

A shop in Luton or a cozy cottage

in Cornwall is all considered part of your

UK property business.

Now, it doesn't matter if you are using

a managing agent.

A letting agent to manage those properties for you.

Collect the rents, get your tenants in.

You are the one ultimately still

running the show.

HMRC will see the income is yours, not your agent,

so you can't abrogate your responsibility.

Now, if you own several properties

all in your name, they count and constitute

one UK business.

That means when it comes to the accounts

preparation, ultimately all the income is

aggregated together.

All your property expenses are aggregated

together, and you look at it as one

unit, essentially.

So if one flat makes a loss, another makes

a profit, you'll be able to offset them

against each other.

Sounds pretty neat.

Now, here's a bit of a twist in the tail.

If you own a property jointly with somebody

else, maybe your spouse, a friend, you might own

one through a limited company, then that's

not gonna be the same business anymore.

For HMRC is about what they call legal capacity.

That's what determines whether it's a separate

business or not.

Let's imagine a scenario.

We have Louise.

She owns two buy-to-lets and a holiday cottage

in her own name that counts as one UK

property business.

But she also happens to own a commercial

unit with her friend Archibald.

Now that is considered a partnership.

That's a different legal setup, and that's

another separate UK property business.

So that's one person, Louise.

But she's considered to have two property

businesses all located in the United Kingdom.

Now you may get a flavor of why legal

capacity matters.

It shapes how your income is taxed.

Emit that and you'll OMI tax savings or

trigger potential penalties and interest.

Let's look at the overseas property

business and ultimately we have

to keep it separate.

And when I say keep it separate, both in

terms of record keeping, calculations and tax.

Now let's visualize ourselves on that

plane, and if you rent a property outside the

uk, HMRC will view that.

As a overseas property business, the country

in which is located by the way, will

also get involved.

So you might own a long term rental.

In Portugal, a ski shall in Nu and a studio in

Cyprus, they go into a separate tax pot.

Now think of it like this.

Your UK property is your first bucket.

The overseas property is bucket number two.

You cannot pour between them.

So if you do make a loss, perhaps on

a Spanish filler.

That's unfortunate, but you can't use

that overseas loss to reduce your UK tax

bill, which that you could, but unfortunately

blames the rules.

Now, there is a new thing for overseas

If you had a furnished holiday letter in

the EEA, the European economic area.

It got special treatment.

It was considered separate from your

long-term overseas LEDs.

Unfortunately, post April 25, there's a change.

An HMRC says, all overseas properties,

irrespective of type of property, must be

treated as one overseas property business, so

long as you're in the same legal capacity.

IE.

You might own them all yourself if you've got

properties overseas, but you've got

partnerships perhaps, or split ownership

on those, that's considered separate

in its own rights.

Now let's introduce another example

into the mix.

Let's imagine Peter, he owns four Residential

Lets in Leeds, a commercial unit in

Bolton, and two holiday cottages in Cornwall.

That counts as one UK property business.

Now Peter also owns a Paris apartment.

On a holiday flat in Barcelona.

That's a overseas property business,

one overseas property business.

Now, the Parisian losses can't be used

to offset the tax that might be due in

Barcelona and vice versa.

It's a clear differentiator, it's a

clear line in the sand.

So ultimately, why does any of this matter?

Well, it's quite simple in a sense of it's about

tax, it's about money, and it's about clarity

and peace of mind.

If you get your business property structure wrong

and it's very possible you could, you are

gonna miss out on those valuable tax release,

you are gonna file the wrong tax return.

You're gonna end up with penalties, you'll be

oblivious to any double tax changes might exist.

Or worse, you'll pay more tax than you need to.

And remember, this applies even if you own

only one property now.

'cause that could change quite rapidly.

So let's do a bit of a recap about

the essentials.

If you earn from property, you are

running a business.

Now, HMRC might not see it as a trading business,

but it's a business.

Nevertheless, UK and overseas property are

not the same business.

We need to differentiate them and we need to

also make sure we got good, adequate records

to support that.

If you own all your UK properties in

your name, treat them as one business.

If you have UK properties and there are other

parties involved with an ownership element there,

then they are separated.

Now, overseas properties is the same rationale.

One business in the legal setup is

the same different legal capacities.

Means and equates to separate businesses.

Now, tax rules, as we know, aren't

designed to be simple.

If they were, life would be nicer.

You put a lot of tax advisors like myself out

of business, but hey, now if you're finding

this problematic, talk to your accountant.

Talk to your tax advisor.

If not, drop us a line.

We help landlords just like you understand

where you stand and if you fancy a nice, easy,

humorous, read the full picture of money Tax

of business, or grab a copy of my book.

I hate numbers.

It's practical.

It's straight talking.

It's well received, and it may be just the

most valuable thing you've read this year.

The fakes.

Well, I hope you found this episode useful.

Share it with somebody else, a fellow landlord,

a property investor, maybe a friend of yours

who think their Barcelona fan is tax free.

And remember, whatever you do with your numbers,

plan it, do it, and profit until the next

time they sandwich.