How is UK tax calculated on rental income from a foreign property?

Full answer

UK residents (including UK-domiciled individuals) are taxable on their worldwide income, which includes rental income from properties located overseas. The rules differ from UK property letting in several important ways. Reporting: foreign rental income is declared on the Foreign (SA106) pages of the Self Assessment tax return, not the UK Property (SA105) pages. You must declare in the tax year the income arises (arising basis), unless you are claiming the remittance basis (generally available only to non-domiciled individuals). Allowable expenses: you can deduct the same categories of revenue expenses as for UK property -- letting agent fees, repairs and maintenance (not capital improvements), insurance, accounting fees, and management costs -- but you calculate these in the local currency and convert to GBP at the spot rate (or an average rate). Mortgage interest on a foreign property: unlike UK residential lets (where S24 restricts the deduction to a 20% tax credit), mortgage interest on a foreign rental property is fully deductible as an expense against rental income. This is a significant advantage for higher-rate taxpayers. Capital allowances: like UK residential property, capital allowances are generally not available for furnished foreign residential lets (post-April 2025 following abolition of the FHL regime). GBP1,000 property income allowance: can be claimed against gross foreign rental income (combined with UK property income if any, the total allowance is still GBP1,000). Double tax relief (DTR): if you have paid local income tax on the rental income in the country where the property is situated, you can claim Double Tax Relief in the UK to avoid being taxed twice. Relief is given as the lower of the overseas tax paid or the UK tax due on that income. DTR is claimed on the SA106 foreign pages. If there is no tax treaty between the UK and that country, unilateral relief is still available. Losses: losses on foreign property can only be carried forward and set against future foreign property profits -- they cannot be offset against UK property profits or other income. FIG regime: from April 2025, a new Foreign Income and Gains (FIG) regime replaced the remittance basis for new arrivals to the UK. Under the FIG regime, non-UK-source income and gains (including foreign rental income) can be exempt for the first 4 years of UK residence for those who were not UK resident in any of the previous 10 years.

Try the calculator