Tax Basics for Foreign Property
Why buying abroad almost always means dealing with two tax systems — and the most common pitfalls to plan around.
Tax is the part of overseas property buyers find most boring and most expensive when they get it wrong. The basics below apply almost everywhere; the details require an accountant in both countries.
Two tax systems, almost always
When you own property in country A and live in country B, both tax authorities will usually want to know about it. Most countries tax their residents on worldwide income and sometimes worldwide assets.
Rental income
Renting out your overseas property typically means filing a tax return in the property's country. You may then need to declare the same income at home and claim relief for any tax already paid abroad under a double-taxation treaty.
Capital gains tax on sale
Selling a property abroad can trigger capital gains tax in both countries. Many treaties allow you to claim a credit for foreign tax paid, but the rules and time limits are strict.
Inheritance and estate tax
Foreign property complicates inheritance planning enormously. Some countries impose inheritance tax based on the location of the property; others on the residency of the heir. Wills written in your home country may not cover overseas assets cleanly.
Heads up
Get specialist legal advice on a 'situs will' (a will covering only the foreign property) before you complete the purchase, not after.
Reporting requirements
Many countries (including the US, UK, Canada, Australia, and EU members) require residents to report foreign assets above certain thresholds, even when no tax is due. Penalties for non-disclosure are often far worse than the tax itself.
Continue reading
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