An overseas property business is the buy to let rental of commercial and residential property that is not located in England, Scotland or Wales.
Commercial property is let to a business – like a shop, office, warehouse, workshop or factory.
Residential property is a home let to a private tenant
Semi-commercial property is a mix of the two – like a shop with a flat or maisonette over the top.
What makes an overseas property business?
The legal definition of an overseas property business is covered under Section 265 of the Income Tax (Taxation of Other Income) Act 2005 [Opens in new window]
The key terms are:
- The taxpayer owns or has an interest outside England, Scotland or Wales.
‘Has an interest in’ generally means that if the property is sold, the taxpayer is entitled to a share of the sale price.
More about property ownership [Opens in new window]
- The taxpayer is resident in the UK
- They generate rents or payments from someone else using the property – like a tenant living on the premises
- The property is land, a building or part of a building. Property includes letting a static caravan or permanently moored houseboat
Who pays the tax?
The property owner runs an overseas property business even if they employ family, a friend or an agent to manage the property and collect the rents for them.
If the property makes a rental profit or is sold at a gain, then the owner is liable to pay the tax.
A common scenario is a property owner handing over the letting to a son or daughter, who have no share in the home, who keep the rents. Regardless of the arrangement, the owner is liable for any income tax on rental profits and capital gains tax on any future sale.
All overseas buy to lets are a single business
If a taxpayer directly owns several properties, either on their own or with co-owners, providing they pass the qualifying test, they are all lumped together under a single tax return.
This means the trading losses or expenses on one property are set off against the profits of another.
Properties owned in different capacities are separate businesses
A taxpayer take part in more than one overseas property business – for instance, he or she can directly own property, own homes in a business partnership or act as a trustee for an estate.
Each capacity is a separate overseas property business and each should have separate business records and tax returns.
Furnished holiday lets
Furnished holiday lets in the UK or Europe have similar tax rules, but are considered a separate business – go to the Furnished Holiday Lets – the basics for more details [Opens in new window].
Holiday lets outside the European Economic Area (EEA) have the same tax treatment as overseas buy to lets.
Go to a map and list of EEA countries [Opens in new window]
