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General guidance on the taxation of foreign income can be found in the International Manual.

Summary

As noted in PIM1025, rent and other receipts from properties outside the UK are taxed as the profits of an overseas property business under Part 3 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA05) for income tax payers. The profits or losses are computed in the same way as the profits or loss of a trade, just like those of a UK property business. The other parts of the Property Income Manual generally apply to receipts and expenses of properties outside the UK as well as those within the UK unless the taxpayer claims the remittance basis for overseas income, see below.

Profits or losses of an overseas property business are not combined with the profits or losses of a UK property business; they are taxed separately and losses on one cannot be set against profits on the other � see PIM1020.

The special rules for furnished holiday lettings (see PIM4100 onwards) do not apply to overseas properties outside the EEA.

Overseas property business

An 'overseas property business' is defined in ITTOIA05/S265. The definition is identical to that of a UK property business except that the land from which the income arises is outside the UK.

For the purpose of deciding whether there is an overseas property business, overseas land law is interpreted to correspond to the UK law that would apply to a UK property business (see ITTOIA05/S363). This is particularly useful when applying the lease premium rules in Chapter 4 of Part 3 of ITTOIA05 to foreign leases.

Charge to tax

The profits of a property business are charged to IT by ITTOIA05/S268. This applies to an overseas property business as it does to a UK property business.

The profits of an overseas property business are chargeable to IT only if the business is carried on by a UK resident - ITTOIA05/S269(2).

Remittance basis up to 5 April 2025

For tax years up to 5 April 2025 a person:

• domiciled outside the UK, or
• not ordinarily resident in the UK

may claim for their relevant foreign income to be charged on the remittance basis. Overseas property income is relevant foreign income.

If a claim for the remittance basis is made for a year then the profits of the overseas property are chargeable to IT under ITTOIA05/S832.

4-year FIG regime from 6 April 2025

From 6 April 2025, all UK residents are taxed on the arising basis of assessment on their worldwide income and gains. For details of the remittance basis of assessment which was available prior to 6 April 2025 see RDRM31030.

Individuals who come to the UK after a period of at least 10 consecutive tax years of non-UK residence are able to claim UK tax relief on foreign income and gains that accrue during their first 4 years of UK residence. Overseas property income is qualifying income for the purposes of the 4-year FIG (foreign income and gains) regime. Where a person claims tax relief under the 4-year FIG regime special rules apply for losses from their overseas property business (see PIM4205) and their entitlement to relief on dwelling-related loans (see PIM2054).

The new rules are contained in sections 845A to 845J of ITTOIA05, inserted by the Finance Act 2025.

Provisions which must be given priority

In the case of a foreign trade the normal 'boundary rules' are reversed, under ITTOIA05/S261(a). Income is charged as trading income rather than property income where the income could be regarded as either trading income or overseas property income. The sort of receipt to which this rule might apply is rent received by a property developer from the temporary letting of land awaiting development: the rent is taxed as trading income.

Tax credit relief

Normally, the tax authorities of the country where the let property is situated will also charge tax on the letting profits. This means that a UK resident landlord will pay tax on the same profits both here and abroad. But the double charge is relieved by deducting the overseas tax paid on the property income from the UK tax due on the same income. This is done either under the terms of a Double Taxation Treaty with the overseas country or, where no treaty exists, under separate UK rules.

If the overseas income has suffered foreign tax and a claim to tax credit relief is made, it will be necessary, for the purposes of the source by source rules (see INTM161210), to identify the amount of UK tax attributable to income from each particular property. Where, therefore, tax credit relief is claimed, separate computations of profits and losses for each property will be required.

For the purposes of calculating tax credit relief, losses should be deducted in the order most favourable to the taxpayer's claim. Normally, this will mean that losses should be allocated first against the source that has suffered the lowest rate of foreign tax.