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Do You Let Out an Overseas Property?

Make sure you are fulfilling your UK tax obligations.

In 2014, HMRC has signed up to an international agreement to share details of financial accounts with over 100 countries and we have seen HMRC increasingly using their new powers.  Combined with ever more sophisticated data analysis software, HMRC are certainly flexing their muscles.

When we think of the concept of offshore tax “avoidance”, we tend to think of oligarchs and tax havens but it also covers situations that are less complex.

One of the more common situations that we encounter is when somebody comes to the UK from overseas, usually for work, and they let the property that used to be their home in their country of origin.

Let us look at the following example:

Mr Sousa has always lived and worked in Portugal.  In 2010, Mr Sousa came to the UK to live and work and became tax resident in the UK.

Keen to have his tax affairs in order, Mr Sousa correctly notifies the tax authorities in Portugal that he will be renting out the property and files tax returns in Portugal and pays Portuguese income tax on the rental income.

Mr Sousa decides to settle in London and pays tax on his UK income under PAYE and consequently believes that his UK tax affairs are straightforward and under control.

In 2021, Mr Sousa receives a letter from HMRC’s offshore compliance unit saying that they have information to suggest that they have become aware that Mr Sousa may have income from offshore and invite him to make a disclosure under HMRC’s worldwide disclosure facility.

This comes as a surprise to Mr Sousa who was unaware that he had any UK tax obligations in respect of the letting of the property in Portugal.

He calls a UK tax adviser who confirms that he should be declaring the UK rental income on his UK tax return.  This is because, as a UK resident, Mr Sousa is obliged to declare his worldwide income and capital gains in the UK. 

A disclosure therefore needs to be made to HMRC under the offshore disclosure facility.  The good news is that a claim may be made for any foreign tax that may have been paid, subject to certain limitations, against the UK tax liability on the income to mitigate the effects of double taxation.

It is particularly important to get your tax affairs in connection with overseas matters right as HMRC’s penalties for matters relating to offshore income and capital gains can be as high as 200% of the tax due.  This is in addition to the tax that needs to be paid.

How we can help

At Hartley Fowler, we have a dedicated team of tax experts who are well versed in dealing with such disclosures to HMRC and will seek to optimise the position for our clients in the event of such a disclosure needing to be made.  It is always better to make a voluntary disclosure to HMRC as this will affect the level of any penalties.

If you are concerned about an offshore tax matter, please get in touch with us for a free 30 minute consultation.