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?