Do you have to pay UK tax on foreign rental income?

Reporting foreign rental income as a UK resident

As a UK tax resident, under the statutory residency test, you are required to declare your worldwide income, including rental income from foreign properties (properties outside England, Scotland, Wales and Northern Ireland).

The UK does, however, have double taxation agreements (DTAs) with more than 130 countries including France, Portugal, Spain, Hong Kong, the Cayman Islands, Canada and the US.

This means that the tax paid in the country where you have the property can be claimed as a credit against the UK tax that is payable on the same income stream.

You will need to declare the income on your UK tax return, and then claim a foreign tax credit for the tax already paid abroad. HMRC may verify that the information you provided is accurate.

Countries have different tax rates and rules, but you generally pay the higher rate of tax.

What happens with negatively geared property?

Negative gearing is when the expenses of your rental property exceed the rental income resulting in a loss.

Even if your foreign property is running at a loss, you still need to declare it in the UK. HMRC requires all rental income, whether profitable or not, to be reported.

It is important to be aware that if a property is negatively geared under foreign tax law it can still be positively geared when assessed under UK tax law.

This is because the allowable deductions under UK tax law differ from those in other jurisdictions. An example is the restriction of relief associated with mortgage interest and other finance costs on residential property. This means that deductions not allowable in the UK must be added back.

Any legitimate losses on foreign property income can be carried forward to offset future profits. This can reduce your future tax liabilities, so it’s in your best interest to report these losses accurately.

The end of the remittance basis taxation

Up until the tax year ending 5 April 2025, a non-domiciled UK tax resident can make use of the remittance basis to only be taxed on foreign income if they brought it into the UK. 

Long-term UK tax residents (tax resident for at least seven out of the previous nine tax years) who use the remittance basis of taxation will be subjected to the remittance basis charge. Before then, the consequence of claiming the remittance basis is restricted to the loss of personal and annual exemption allowances.

However, with the potential abolition of the remittance basis regime looming, many non-domiciled people or “non-doms” may soon find themselves subject to UK tax on their worldwide income, regardless of whether it’s brought into the UK or not.

See also: Summary of UK Budget announcement on non-domicile regime changes

From April 2025, any new non-doms arriving in the UK will only start being taxed on their overseas income after four years of UK tax residency (after a period of non-residency spanning at least 10 years) if an election for the new foreign income and gains (FIG) is made.

Under the current regime, if you’re non-domiciled or deemed domiciled in the UK and your unremitted foreign income is less than £2,000, the remittance basis may apply to you automatically, meaning you won’t need to pay UK tax on that foreign income unless it is brought into the UK.

However, it’s essential to ensure that your unremitted foreign income is calculated correctly, especially if you own a rental property abroad.

To accurately assess whether your foreign income falls below the £2,000 de-minimis remittance basis threshold, you cannot simply rely on foreign tax laws, particularly if your property is negatively geared.

Only if your adjusted profits, when converted to sterling, are below £2,000 will the remittance basis apply automatically.

Consulting with a tax adviser is a good idea to help you understand the rules around declaring foreign rental income to avoid penalties. If you need advice, contact us at accounting@sableinternational.com or call +44 (0) 20 7759 7553.