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

:: 00:00

Welcome to this week's I Hate Numbers episode. Now in this week, I'm going to 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. Then this episode is for you.

:: 00:19

Now, if you are thinking one property business covers everything, covers all the properties, again, unfortunately, you're going to 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.

:: 00:37

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 going to happen if you get it wrong, it's going to cost you. So let's crack on. 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.

:: 01:01

It could be a buy-to-let in Leicester, a shop in Luton or a cosy 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.

:: 01:20

HMRC will see the income is yours, not your agent’s, 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.

:: 01:44

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 going to be the same business anymore.

:: 02:00

For HMRC, it's 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.

:: 02:19

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 flavour of why legal capacity matters. It shapes how your income is taxed.

:: 02:38

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:: 03:01

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:: 03:11

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 visualise ourselves on that plane. And if you rent a property outside the UK, HMRC will view that as an overseas property business. The country in which is located by the way, will also get involved.

:: 03:33

So you might own a long-term rental in Portugal, a ski chalet in Chamonix 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 villa, that's unfortunate, but you can't use that overseas loss

:: 03:56

to reduce your UK tax bill. I wish that you could, but unfortunately it bends the rules. Now, there is a new thing for overseas landlords, and that's from April, 2025. If you had a furnished holiday let in the EEA, the European Economic Area, it got special treatment. It was considered separate from your long-term overseas

:: 04:15

lets. Unfortunately, post April 25, there's a change. And 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 i.e. 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.

:: 04:38

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 and a holiday flat in Barcelona. That's a overseas property business, one overseas property business.

:: 05:01

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 the sense of it's about tax, it's about money, and it's about clarity and peace of mind.

:: 05:21

If you get your business property structure wrong and it's very possible you could, you are going to miss out on those valuable tax reliefs, you are going to file the wrong tax return, you're going to end up with penalties, you'll be oblivious to any double tax charges that might exist or worse, you'll pay more tax than you need to.

:: 05:38

And remember, this applies even if you own only one property now because 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.

:: 05:59

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.

:: 06:16

Now, overseas properties is the same rationale. One business at 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’ll put a lot of tax advisors like myself out of business, but hey, now if you're finding this problematic, talk to your accountant,

:: 06:37

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 and business, well 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 read this year.

:: 06:58

Now folks, 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 farm is tax-free. And remember, whatever you do with your numbers, plan it, do it, and profit! Until next time, stay sanguine.