Tax on property rental

[widge]

Why do you bother - it it really worth the effort

I sincerely hope the return on all your investments exceeds the cost of this excessive bureaucratic liability

It probably won't but you know what they say……………If you can't take a joke then ………….

[widge]

Here we go again……….http://www.dailymail.co.uk/news/article ... rists.html

[sunman]

Here we go again……….http://www.dailymail.co.uk/news/article ... rists.html

le chat est parmi les pigeons

[widge]

and La merde frappe le ventilator

Due to the current economic crisis, Greece is cancelling all production of humus and Taramasalata. It's a double dip recession.

[widge]

After a couple of weeks we have received a response from the Lisbon tax office which rules that;
With effect from Jan 2012 no expenses other than for the maintenance and upkeeping of the property can be included in the tax declarations which means no electricity, gas, cleaning , commission, admin charges etc.etc.can be deducted.
As you can imagine this will have a very significant impact on the taxable income & therefore tax payable. My return is being adjusted accordingly for last year & I have registered as a business w.e.f Jan 2013. If that proves too expensive / problematic then we withdraw from the market, make the maid redundant, lose the agencies & the service suppliers & keep it for ourselves.

Portugal seem incapable of executing coherent regulations which are readily understood by those they choose to regulate or enforceable by those who are meant to administer them, a bit like the UK really.

[steve]

Sadly this reflects the experience of resident tax payers. As part of the measures needed to meet the demands of the Troika over the last couple of years allowances of many sorts have been reduced or abolished and as a result the amount of tax payable has increased significantly.

[brian m]

I have today received my amended tax bill from the Portuguese tax authorities based on the new tax system 2012 whereby I am unable to claim expenses in the "conventional" manner i.e. cant claim for: maid, cleaning, laundry, villa manager, security, commissions, electric, gardener, pool man, replacement linen, etc .and its a little worrying!
I still don't think its worth signing up for the business tariff as the additional cost of accounting will have to be taken into account. I actually don't think its worth letting the villa out! I can offset this huge tax bill against my UK tax bill only because of higher rate tax, but its something to be concerned about.

[shanagarry]

That's not a painting a very positive picture for those who have invested in a property with the sole intention of renting it. The more severe impact to follow this will be the further downward pressure on property values.

Clearly the impact on the local economy when maids and gardeners lose their livelihoods is just the tip of the iceberg.

If you can't take a joke then ………

I don't believe there's any funny side to this and begs the question - is there any end to all this 'doom and gloom'?

[brian m]

i think there is a positive note ,at least we know exactly where we stand! regards the 2 tax regimes......a business or personal.... and when i have done my sums i still make enough to cover my costs all be it just.
i can always increase my rents lets hope for a good season!

[shanagarry]

lets hope for a good season!

Good luck - I wish you every success

[widge]

I'm no expert but not sure that higher rate tax in UK has any bearing on the situation? This article describes the position quite well………..

Tax due overseas on rental income

Many people overlook the fact that they have a liability to pay tax on the rental income in the country where their rental property is situated. This applies whether you are resident in that country or in the UK. This means that if you own a property in Portugal, for example, you will need to submit a tax return to the Portuguese authorities showing your rental income (together with any other Portuguese sourced income), even if you don’t live in Portugal.

As a UK resident you will also need to declare the income to HMRC. Portugal has a “double taxation agreement" with the UK so in most cases you are unlikely to face being taxed twice on the same income.

The double taxation treaty grants partial relief against liability to tax in the UK. Where your UK tax liability is greater than the tax payable in Portugal, the difference is paid in the UK. However, if the UK tax is less, there is no repayment of the Portuguese tax in the UK.

For example, if you have a property in Portugal, supposing there is a basic rate of 20% tax on the net rental (and other) income of non-residents, (although you may be able to benefit from a lower rate, depending on the level of your worldwide income). Someone who is a resident in the UK and a higher rate tax payer will pay tax at 20% in Portugal and pay the balance up to 40% or 50% in the UK.

The tax rate is determined by the government of the country your property is located in, so you do need to check what the rate is. In some cases there is a sliding scale dependent on income, or you can opt for a fixed rate, irrespective of income in the tax year.

You are advised to seek specialist advice as many European governments have made recent changes or are considering making changes to the rates at which tax is due on rental income.

[Geoff]

I'm no expert but not sure that higher rate tax in UK has any bearing on the situation?

I'm with Widge on this one...whilst one might be a higher rate tax person due to income/pension/investments, the (high) Portuguese tax paid can only be offset against the " net profit" from letting a property overseas....a "loss" on this due to Portuguese tax paid can't be set off against other income.

[e-richard]

..a "loss" on this due to Portuguese tax paid can't be set off against other income.

This is what I understand too, but am I right in thinking that you used to be able to do this not so long ago ?
Or was I cheating back then ?

[brian m]

sorry I probably didnt explain it correctly, you are correct about nothing to do with higher rate tax.In my situation I complete a self assessment and declare my income from land and property abroad.I subsequently claim foreign tax credit releif and declare the foreign tax already paid.

[RichardHenshall]

The marginal rate of tax in the UK is relevant (to the tax due in the UK). Assume the following hypothetical situation in PT:

€12,500 Gross rental income
€2,500 Allowable deductions in PT (IMI, building maintenance etc)
€10,000 Taxable Income in PT @ 28% makes €2,800

In the UK the allowances are potentially better and include utilities, maid, gardening etc but are subject to private use adjustment:

€12,500 Gross rental income
€7,500 Allowable deductions in UK (IMI, building maintenance,utilities, maid, gardening etc but not PT tax)
€5,000 Deductions reduced by one-third, say, for private use (12 weeks rental, 6 weeks own use)
€7,500 Taxable Income in UK (taxed at marginal rate)

If basic rate taxpayer in the UK @ 20% then €1,500 UK tax is due but since €2,800 PT tax has already been paid then no more has to be paid in UK but none of the PT tax will be refunded either.

If higher rate taxpayer in the UK @ 40% then €3,000 UK tax is due but since €2,800 PT tax has already been paid then only €200 extra UK tax has to be paid.

In this example the UK basic rate taxpayer might as well have been a UK higher rate taxpayer. The increase from 16.5% to 28% for IRS 2013 onwards really hurts.