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Overseas Holiday Home

About 7 or 6 years ago my wife and I jointly bought a property in Spain for about £120,000.

We funded it from the sale of another UK property, on which no CGT was payable, due to PPR and other reliefs: and by increasing our mortgage on our current UK residence.

I have always contended that the interest on the extra loan will be deductible from the letting income to arrive at the profits or losses on renting the overseas property because that borrowing was taken out for the purposes of acquiring the foreign property.

The costs, (service charges, cleaning, water, electricity, local taxes, TV, mortgage, etc),  were always greater than the income: and to avoid accounting and tax costs and hassle, we decided not claim the losses arising - about £2,000 - £3,000 p.a.  Even when the "amnesty" for overseas assets was in place, our approach did not amount to any loss to the Revenue, so we let it pass.  During that time one of us paid higher rate tax but the other just about paid basic rate and no more.

However, last year it probably broke even and this year it will make a small profit, maybe £2,000: and to complicate matters, the higher rate tax payer has become unemployed.  So, I am beginning to think about what to do, if this profitable run continues.

Capital values have not increased much but the property is worth about £150,000 now.  We intend to keep the property for several years yet as we hope to spend some retirement days there.

Have we already fouled up?  What do you think we should do?

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By pawncob
27th Feb 2012 22:02

Losses?

If you made a return you must have shown the losses, which would have accumulated if you didn't (couldn't) relieve them, so they're available for offset agsinst any future profit.

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28th Feb 2012 07:51

Losses

We did not make any returns: so as yet we do not have losses to bring forwards.

Should we do that?  Will that create other issues?

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28th Feb 2012 10:38

Have you been completing tax returns?

Are you saying that you have not disclosed the overseas property income or that you have not been completing tax returns at all?

Although it does not necessarily follow, the Revenue tends to require higher rate taxpayers to complete UK tax returns each year.  If you have been completing tax returns without disclosing your share of the losses on the overseas property business, then Yes - you have fouled up.  But, as no tax was payable and as you were not attempting to claim the property losses against your other income to obtain a tax refund, no harm has been done.

If you are completing tax returns every year, I would disclose the profits on the return for the first tax year of profits and the losses brought forward, some of which you will be setting off against the profit.  Remember that you are entitled to only 50% of the profits and losses.

If you have not been required to complete tax returns - and I assume that this applies to your wife - you need to notify chargeability to tax by 5th October following the end of the tax year in which profits first arose.  The Revenue will then issue tax returns for completion by each of you.

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28th Feb 2012 10:46

No, Pawncob was shooting from the hip last night

You do not need to notify HMRC until you start to generate a taxable income.

Rework all your last years now and see what your current cumulative losses are, tell all to HMRC and start completing property pages from now on.

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29th Feb 2012 07:47

No tax returns for overseas property income

I have not completed tax returns for a a few years now.  I wanted to as I have pension payments, benefits and a tiny amount of investment income: but HMRC say I do not qualify with any of the criteria for completing a SA tax return.  They always get my tax wrong - I am fairly literate in the basics this field.  So, it needs changing.

I have just started being self employed, so I have now applied for a SA tax return - being self-employed does count, of course!

Thank you for your thoughts.  I thought I would calculate the losses to date, as suggested: but I remembered some issue relating to Entrepreneurs (?) Relief a few years ago.  Is that an issue?

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By pauld
29th Feb 2012 08:39

Furnished holiday let

If the overseas property qualifies as a furnished holiday let- see link below- then as it is in spain, you may be able to claim losses prior to 2010/11 against your other income in the relevant years. If one of you was a higher rate taxpayer during this time, then you could reclaim tax of 40% of one half share of the losses and 20% of the other half share for the basic rate taxpayer. This could amount to a fairly good refund on losses of £2,000 to £3,000 per year.

http://www.hmrc.gov.uk/budget2009/furnished-hol-lets-1015.pdf

 

 If one of you is now unemployed, you might want to consider transferring the property into the sole name of the unemployed person and assuming they have very little other income, the profits on the property would be tax free in the UK.

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