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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Hello, I have just acquired a participation in Tenerife, from

Resolved Question:

Hello,
I have just acquired a participation in Tenerife, from which I can get up to 1500 euros from letting. The tax is paid at source in Spain and I spend 2-3 weeks in Tenerife. Am I eligible for tax in the UK? If not, do I need to declare it? I am a retired teacher with the UK income of about £26000.
Elizabeth
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi Elizabeth

Thanks for your question.

My name is XXXXX XXXXX I am one of the UK tax experts on Just Answer.

Yes you must declare this foreign income to HMRC, along with any expenses that arise - which you adjust for the 2-3 weeks that you make use of the property) as there will be a UK tax liability to consider, but you can also declare the Spanish tax suffered, so that you do not suffer tax twice on the same income (under the Double taxation treaty we have)

You should contact HMRC to request that a self assessment tax return be issued to you each year (if you do not already complete one) to declare ALL you income (both UK arising and this foreign rental income)



Thanks

Sam
Customer: replied 2 years ago.

Thanks. Is it not possible to stay under PAYE system in the UK and only declare this foreign income? What sort of evidence do I need to send them?

Expert:  Sam replied 2 years ago.
Hi Elizabeth

Thanks for your response

You will remain under the PAYE system with the UK income but self assessment allows a consolidation of the whole income position#
So on the self assessment tax return you would declare the sources of UK income either on the pension section (as I assume this is pension income)along with the tax suffered (from your P60(s)) AND you will complete the foreign income section detailing the rents less expenses.

You then are allocated personal allowances (which already have been utilised through the PAYE income) and then the overall tax position is calculated.
From the overall tax position, deductions are made for
1) The PAYE income and the tax suffered
2) Any foreign tax suffered

Which will leave either a position of tax owed to HMRC (usually if the foreign income tax rate is lower then that of the UK, or the combined income is in excess of £42.465 - as then 40% tax has to be considered on any income in excess of this threshold) OR you will owe nothing - as sufficient foreign tax has been paid, and the combined income is less than £42,475.

But self assessment is just a means of reporting a total position to HMRC, in one place, to allow then review all aspects of tax obligations.

Self Assessment works on a system of declare now, and possible they check later (although they select at random cases they wish paperwork provided fro) so initially you would just declare the figure work for all sources of income, and in the case of the rental income - the expenses incurred, and for all relevant sources, any tax suffered.

HMRC will accept this information at face value, but its imperative to keep all paperwork, should HMRC review the self assessment tax return - and although HMRC state you need only keep evidence for 3 full tax years, I still advise all my clients to retain what was previously 5 full years.

And just for information, should you sell in the future, then you also have a UK capital gain position to consider should you make a profit on the sale.

Thanks

Sam



Thanks

Sam

Customer: replied 2 years ago.

Sorry, I am not quite sure, whether I would need to work it all out from scratch or is it enough to copy what Inland Revenue had already calculated as my tax? (For example this year I am supposed to have underpaid, because that got my tax free allowance wrong). Also what would constitute "expenses" during my weeks in Spain?

Expert:  Sam replied 2 years ago.
Hi Elizabeth

Thanks for your response

There is nothing to work out as
1) you either fill in a paper self assessment return which is issued soon after the 6th April for each relevant year (to declare all income for the preceding tax year) and this has to be with HMRC by 31st October, so they can process the information and advise you, the full calculation position in time for the 31st Jan (the following year)
OR
2) You register for HMRC online services (after registering for self assessment and HMRC have sent you a 10 digit unique taxpayer reference number for self assessment) and then once you have input all the figure work (which also asks for any unpaid tax that might have been collected in that years tax code) the online system makes the full calculation for you.

You always have the option of engaging a local accountant to take the burden of completing this form for you, and the accountancy costs becomes an allowable expense against the rental income - so a viable consideration.
But if when you get your first tax return, you can always return to Just Answer, and you can always ask for me Sam Tax, if you would prefer to assist with its completion.

The types of expenses you might have incur against the rental income (which you would need to convert to sterling, as you would the received rental income) are any interest on a loan repayment (if this is how you purchased the property) any insurances, 10% wear and tear (as I assume this will be furnished) any repairs, having key cuts, any agency fees if you will have an agency acting for you to rent out this property, and/or advertising fees to market the rental availability of this property yourself. Having spare keys cut, cleaning the property after a rental, heating and lighting costs, any management fees paid if this is one of many within a complex.
Then of these expenses - you might be in a position where you have utilised this for 3 weeks of the year, and that it was available for the other 49 weeks, so you could claim 49/52 on the annual expenses such as heating and lighting, insurances and repairs, where as the actual out of pocket expenses due to rental could be claimed in their entirety (such as additional key cutting, managing agent fees, etc)

So you reduce the expenses to reflect the weeks you made personal use of this property -

Thanks

Sam

Customer: replied 2 years ago.

Thanks. Can you tell me what sort of proof do I need to provide to show that the Spanish tax had been paid at source?

Expert:  Sam replied 2 years ago.
Hi

Thanks for your response

Do you have a Spanish agency handling the rental for you - who will make the Spanish tax deduction at source?

Thanks

Sam
Customer: replied 2 years ago.

Yes but so far they just told me things by emails (like: "if they ask, tell them it's deducted at source"). What do they need to provide?

Expert:  Sam replied 2 years ago.
Hi

Thanks for your response

Then IF they make deductions, then they should provide you with an annual account of what rents have been collected - less their fees and any other expenses they will oversee, and also what tax has been deducted and paid over to the Spanish tax authorities, which in essence will certify what has been paid.

Its not enough to accept "if they ask, tell them its deducted at source"
It either is, or it isn't ! And if it is you need a certificate detailing it has - and this is the proof you retain to
1) Complete the foreign tax suffered on the foreign section of the self assessment tax return
2) Produce as evidence should HMRC select your self assessment tax return to review

If no foreign tax deductions are to be made, then you will have a full UK tax liability on this net income (rental income less allowable expenses) but you don't want them to steer you down the route of stating that foreign tax has been suffered when it has not.

Do feel free to ask any further follow up questions on this, but if you make sure you rate the level of service that has been provided, it would be appreciated, as this ensures I am credited for my time.

Thanks

Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13704
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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