Declaring foreign holiday rental income on a UK tax return

If you are resident in the UK and rent out your holiday home in Portugal, you will pay tax on your worldwide income in the UK, not Portugal. In most cases, this means you will have to:

Submit a Portuguese tax return each year, declaring your Portuguese rental income only;
Submit a UK tax return each year declaring the Portuguese rental income plus any other UK income such as income from self employed work or a pension.

UK tax returns (for the UK tax year running 6 April – 5 April) are due by 31 January if done online.

Portuguese tax returns (for the Portuguese tax year running 1 Jan – 31 Dec) are due by 31 May and must be filed online through the Portal das Finanças.

Do I need to file a UK Self-Assessment Tax Return?

(When working out your income in pounds, you normally use the exchange rate when the rental income was due).

NET rental income up to £1000 - No

From 6 April 2017, any income from overseas property, including UK property, up to £1,000 is exempt from tax and doesn’t need to be reported on a tax return.

NET rental income over £1000 – YES

If your total income from your overseas property is over £1,000, you need to file a UK tax return, making sure you fill out the relevant supplementary pages:

‘UK property pages’ - for income earned from foreign property including furnished holiday lettings (FHL).
‘Foreign’ pages’ - boxes 14 to 24.1, columns A to F, and boxes 25 to 32 (not furnished holiday lettings (FHL) - this goes in the UK property pages only).

If your accounting period for your property income doesn’t end on 5 April, apportion the figures in your accounts to cover the UK tax year.

FAQ

‘FHL’ or ‘Overseas Property’?

To complete the supplementary pages of your UK self assessment tax return, you will need to know whether your property can be classed as a Furnished Holiday Let (FHL).

There are special rules for Furnished Holiday Lettings (FHL). You may be able to claim certain Capital Gains Tax reliefs and capital allowances for items such as furniture and fixtures. In order for the property to qualify as a Furnished Holiday Let, the property must be;

• Available for letting for at least 210 days of the tax year; • Actually let for at least 105 days of the tax year;

If your property does not meet the required criteria, skip to box 20 on the UK Property pages.

How do I deduct expenses on UK Tax return?

• Automatic

In the ‘Foreign pages’ tick box 14.1 to claim the property income allowance (£1000). If you do this, you can’t deduct any allowable expenses or claim any other allowances.

The property income allowance applies to both UK and overseas property businesses. Individuals can decide on a year by year basis which approach to take. The best option will depend upon the level of expenses in the property business.

• Manual

Calculate your property profits by deducting allowable expenses and allowances. If you do this, you can’t claim the property income allowance. Expenses can include insurance, condominium fees, repairs/maintenance, management fees and other property related expenses.

* UK residents with property income generated in Portugal are entitled to the same personal allowances, reliefs and reductions for the purposes of Portuguese tax as Portuguese nationals.

Will I have to pay tax twice?

You won't have to pay tax twice on your rental income as you can claim Foreign Tax Credit Relief (FTCR) through your UK tax return - this means that in the event of being taxed in Portugal, you can claim it back on your UK tax return, thus lowering the total amount of UK tax due.

You can claim Foreign Tax Credit Relief (FTCR) if:

you’re a UK resident
the foreign income was properly charged under Portuguese law
the amount of FTCR doesn’t exceed UK tax on the same income

You don’t need to work out the FTCR yourself; you can leave box 2 on the Foreign pages blank and HMRC will do it for you. Only fill in box 2 on the Foreign pages if you want to calculate the FTCR yourself.