Tax on property rental

[Sheila]

If you live in the UK and rent out a property in Portugal do you pay income tax on the profit in Portugal or the UK?

[widge]

You have to declare it in UK on your self assessment return but you should get credited in the UK with any tax payable in Portugal as the tax treaty prevents double taxation.

[Geoff]

Short answer is both....if you have any income in Portugal, you must declare it.....and, as Widge says, you can then mitigate UK tax by the amount of Portuguese tax paid.

[widge]

An even shorter answer is NO - many owners neither declare income, licence their properties or complete a tax declaration, no names of course

[Geoff]

many owners neither declare income, licence their properties or complete a tax declaration

....they'll get no sympathy from thelaw-abiding folks once they get caught and fined then!

[pato]

My advice was that I could pay tax in either country and I'm sure that's correct, I chose England because I understand what they're saying.

[Geoff]

My advice was that I could pay tax in either country

Think it depends on where the money is paid.....if you are paid in Portugal, as we are, then it must be declared in Portugal ( & UK)....if you get paid in UK, then you may be right.

[pato]

My advice was that I could pay tax in either country

Think it depends on where the money is paid.....if you are paid in Portugal, as we are, then it must be declared in Portugal ( & UK)....if you get paid in UK, then you may be right.

My advice was that I could pay tax in either country

Think it depends on where the money is paid.....if you are paid in Portugal, as we are, then it must be declared in Portugal ( & UK)....if you get paid in UK, then you may be right.

I've had no problems with my returns I don't advertise the premises as a business, I get paid in the UK if I let and only accept cheques which I pay into a special account, not because I'm clever! just the opposite I'm dead disorganised and that's the only way I can keep track. Tax! it's an EU directive, you only need to pay tax in one state.

[EMM]

As far as the Financas are concerned as the property is in Portugal the tax on any income should be paid there.
You can then offset that tax against any UK liability entering the income and tax paid in the foreign earnings section.
If you are a higher rate tax payer ( 40% ) then you may have an additional UK tax liability.

[Geoff]

Sounds as if EMM is with me on this!

[widge]

The "Furnished Holiday Letting Property Schedule" works like this

Income

Income - (any rent & income for services provided to tenants) £
Private Use Adjustment (if expenditure includes costs associated with your personal use) £

Expenditure

Repairs,insurance,cost of services provided (e.g. Maid) £
Loan interest & financial costs (mortgage) £
Legal, management & professional fees £
Other allowable property expenses £
Capital Allowances £

Profit / Loss for the year £

[Geoff]

That looks like the UK tax regime, Widge.....question is , is one liable for Portuguese Income Tax for a Portuguese property IF income from letting is only paid in UK....it certainly is if income arises in Portugal.

[widge]

Well my managing agent completes a tax declaration on my behalf. Typically the tax payable to the Financas has been less than €200 per annum & does not include rental income originating in the UK. It refers instead to "Rendimento Global" less specific allowable deductions and then taxes a % of the balance. The tax paid in Portugal is added to my deductible expenses on my UK return & therefore effectively reimbursed.

[EMM]

As far as the PT financas are concerned ( letter of the law ) the income where ever paid is earned on the property in Portugal and should be submitted with evidence of any UK tax paid.
The PT tax regime is not as generous as the UK with allowances which can be offset against income.

The answer is yes you are liable for PT tax on a PT rental property how ever you receive the income.

[RichardHenshall]

The rules are very clear. Income generated from a property should first be declared in the country where the property is located and tax paid to that country according to that country's rules. The same income should then be declared in the country where the owner is tax resident and tax paid to that country according to its rules. If there is a double taxation treaty between the two countries the tax paid in the first country can be offset (but not refunded) against the tax due in the second. The same procedure applies to capital gains on property. The (income) tax in one country is never an allowable deduction against income in another and cannot be refunded, it can only ever be a allowance against the tax due in another country. It is irrelevant where the money actually changes hands.

It should also be noted that the rules for calculating the profit will be different between the two countries so one country might consider there is a large profit which it taxes at a low rate and the other could be the complete opposite. The double taxation treaty will ensure that the combined taxes paid always match the worst case (ie highest tax) that is possible for the particular combination of circumstances.

If the income is declared and tax paid in, for example, the UK only then Portugal is deprived of tax to which it is legally entitled (so it has to try to recover this from other taxpayers to balance its budget). Furthermore the UK will receive tax to which it isn't entitled (so you won't hear any complaints from HMRC).

The furnished holiday lettings rules in the UK only apply if the property is commercially let for 105 days (15 weeks) per annum with no let longer than 31 days, amongst other conditions.