Rental Income taxation

[T.W]

I am intending purchasing a villa in Carvoeiro which I intend to rent out.

Can anyone advise me if I will have to pay the Portuguese tax of 25% as a non resident of Portugal, on rental income recieved as well as U.K income tax on the profit. I am a U.K resident and pay U.K income tax?

Also is IMT due on purchase the same thing as SISA tax?


Many thanks for any advice.

T.W

[biffa]

Yes, IMT replaced Sisa Tax so is more or less the same thing on a sliding scale but with different rates and levels. There is a table on the Financial Forum but it needs updating for the latest rates (oops - job for tomorrow!)

As a non resident you will pay 15% tax on rental income in Portugal sfter allowable deductions. The tax paid in Portugal can then be set off against any tax due in the UK under the UK/Portuguese Tax Treaty.

[T.W]

Biffa

Many thanks for the reply, from that information it seems that I will have to pay less tax on the rental income than I initially thought.

Best regards

T.W

[Guest]

The Inland Revenue operate a very simple system for accounting for income from holiday rentals and it is not usual to be asked for evidence in support of the declared income and allowable expenses. If however you declare a profit you will have to pay tax on it at the standard or higher rate of tax as appropriate. Losses can be rolled over to offset against future years' profits.

I have no direct experience of the Portuguese system but I understand that you can only deduct expenses which are supported by a formal invoice showing IVA and there is a far higher likelihood of being asked to produce the documentary evidence. 15% tax in Portugal will not extinguish a tax bill of 25% or higher in the UK although it will reduce it but at leats the double taxation agreement means that you will not be asked to pay both!

[T.W]

Guest

Thanks for that information.

If losses can be offset against future years profits am I correct in thinking that costs incurred ( specifically mortgage interest payments on the property) could be offset against P.A.Y.E taxation payments made in the U.K as a result of employment in England?

Regards

T.W

[Guest]

I found that individual Inspectors of Taxes took differring lines. Mine would not accept the costs of airfares for inspection visits as a valid deductable expense but I am aware that other people have claimed this.

You would have to check about mortgage payments. This will not affect PAYE because the tax on income from property rental comes under a different tax class ( hence the loss roll over facility) but you should in theory be able to claim the payments as a legitimate expense of running the villa (less obviously a percentage which represents your own use of the property).

If you phone the HM Revenue and Customs helpline you should be able to order either a leaflet on the subject or at least the notes issued to help complete the form used to declare the income

[T.W]

Guest

Thanks for the information. Much Apprieciated