Tax bill for rental property in UK, help please

2 Replies
Verinia

1498225633

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I  have a financial question.We are tax residents in portugal.We have a rental flat in the UKon an interest only mortgage which for the last 7 years, we haven't made any income on, as the interest only mortgage and expenses have been more than the rental income. Recently, last year in fact,  they changed the law in the Uk to make all income from rental be seen as being taxable, whereas in the past we could offset our mortage expenses against it, but not any more,We obviously do tax returns in each country, but this year, although we have received no income, the Portuguese financas say  we owe them tax against that income, even though we haven't in reality had any income from our rental, so we have had a bill for 1,200 euros we weren't expecting.Can anyone comment on this for us, please?

Replies

Avelarico 1499129446

As you know, UK property income is first taxed in the UK using the UK's rules on expenses, deductions and tax-free allowances to arrive at an actual UK profit & tax bill.  In my opinion, the same (gross) income is then taxed in Portugal using Portugal's rules for this type of income and the different ,allowable expenses, deductions etc (maintenance, IMI etc) to arrive at a Portuguese profit.  In addition whatever tax has already been paid to the UK can also be deducted.  Whether the UK allowed mortgage interest or gave you a tax-free allowance has no direct bearing on the Portuguese profit computation.  The opposite applies to me for AL income - in Portugal it's a fixed percentage of turnover but then in the UK it's income less allowable expenses, less PT tax already paid.

Verinia 1499166160

Thanks very much for your clear explanation.I think we will hve to look more clearly at the Portuguese allowances against rental income to see if we can mitigate the tax liability which we didn't expect.

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