wellinever

So if a property is rented out in the UK and all of the rental income is taxed (less allowable expenses, fees insurance etc) and the first £1000 of rental income is tax free) and that all of the income is actually taxed as it is all over the £12,500 tax free allowance, what would be declared in PT ? The net income after all costs and tax in UK paid or the total original gross income?

Red Eric

I'm going to have to pass on that one. I know the principles but not the full detail.

Maybe one of the forum frequenters who actually both rents out property in the UK and declares the income in PT (should there be such an animal ) could comment?

Pulaski

I am not an expert on the peculiarities of PT tax, however I would expect that Portugal would have it's own rules for how to calculate taxable income from a rental property, as the rules can vary considerably from country to country as to what expenses are deductible from "gross rental income" to reach "net taxable profit". In other words, I expect that in Portugal you would start with a new tax computation with gross income and deductions from that amount.

For example, in some countries almost every out-of-pocket expense can be deducted from gross rental income, but the UK has restricted the deductions that can be made to make being a private landlord less attractive/ profitable.

wellinever

[QUOTE=Red Eric;13222899]I'm going to have to pass on that one. I know the principles but not the full detail.

(should there be such an animal )

Makes you wonder, I went to chat with my contabilista this morning to ask his opinion.......gave him an example of how tax is treated in UK on rental, from gross rent to tax payable, using deductions as given etc.
He simply went to the top line gross income and said.....................Its that that would be declared in Portugal, and you would claim tax refund in UK for tax paid in Portugal.....however when I explained that the tax in UK that would have already been paid would be re-claimed against PT tax......his assistant popped up and said " Well we only put down on your tax return what you tell us to"
I also mentioned that other posts I have read suggest declaring net income after all taxes and deductions have been paid for in UK.......reason being, that that, is `the income`, as its what is left.
Given that the original gross rental receipts would be taxed at 28% with no deductions allowed, along with other real costs to the tenancy and tax in UK it would not be worth renting at all....

liveaboard

Deductions are allowed; but financas is a bit particular about the paperwork.
I always deduct insurance and city property tax paid for my rental property. This year I have huge repair expenses, all documented with my PT NIF on the bills. I'll know whether that gets accepted in around 6 months.

My understanding is that the double tax treaty specifies that property income is taxed in the country where the property is, and will therefore not be taxed in the country of the owner's residence. Property income is treated differently to most other income.

However, since my rental properties are not considered property, my situation is different and I'm also not sure about the details.

wellinever

When the assistant mentioned,,,,,we only declare what you tell us.......he contabilista looked and smiled !!! Sums it up I reckon....

liveaboard

Well, they work for you, not the tax department.
Just remember that they will file your taxes based on the information you give them, and you are responsible for the accuracy of the declaration.
I suppose that it's probably extremely difficult and unlikely that the PT financas would / could check UK (or other foreign) accounts to verify statements.
On the other hand, penalties could be unpleasant if one were to be caught making false statements and evading tax.

Red Eric

To clear up the above re: only taxing in the source country / who has frst dibs.

Tax is not taxing unless it’s in Portugal

Not a source I would normally put too much faith in but since they've consulted an expert on this occasion and the advice is sound, and since the article as a whole has some other points of interest, I think it's worth passing on.

dingg

They do talk to each other

A friend was called into the financas department to explain his return and authenticate it, tge person asked are you sure that is all?
Then asked whattabout this annuity whattabout this pension and swung the screen round to show exactly what he was speaking about 👀

wellinever

I understand that annuities giving a pension are only taxed on small % of amount actually received as a pension, as you are actually getting your own money back, and almost same amount is deducted from UK state old age pension, if money came from contracted out original pension contributions

Red Eric

Might I suggest that your contabalista may not be any sort of authority on the interactions of the 2 tax jurisdictions and the DTA.

And add that I have also had duff info from an accountant on a much less complex matter, involving, as it did, only income arising in PT (and which led to me considerably overpaying tax here for a number of years)

Not at all a sound principle on which to base declaration of any income.

I, for example, receive income from the UK, nett of any UK tax due, directly into my PT account, where it shows as euros. Obviously it wouldn't be right to just declare that amount as income "because it's what I receive". I have to declare the gross amount paid, converted from pounds to euros using the Banco de Portugal currency converter rate applicable on the day of the payment, and also declare any tax paid in the UK. Obviously the gross amount converted at the official BdP rate isn't anything like what lands in my account in PT, after it's been nibbled at by the remitting agent which takes its slice from either an adjustment on the rate or a charge / commission, or possibly both.

Besides, the relevant field of Annex J clearly requires declaration of UK tax paid, alongside a field for "liquid amount" (which is gross rental income less allowable PT deductions but before UK tax).

Pulaski

Thank you. That says, in more formal language, what my off-the-cuff post above said.

Red Eric

Indeed. Take a couple of house points for knowing more than whichever HMRC employee shouldn't have commented on matters of international taxation beyond their ken, and wellinever's accountant.

wellinever

Well as a non UK resident renting out a property in UK, you have 2 choices regarding tax......
1) To allow HMRC to collect tax direct from letting agent, if used, in which case tax is taken on rental received before any deductions at ether 20 or 40%.......then any over/under payment is decided on filing a tax return. OR
2)Request HMRC allows you to take rental income without any UK tax paid, until self assessment tax return is done.

I am aware of allowable deductions in UK, but what I need to know is what allowances are available in PT.in that case.
It seems odd to me that if I were to rent out my PT property under AL I would only pay tax in PT on 35% of the rental income at nominal rates, but its looking like tax is payable on Gross income on renting out a UK property. Surely a UK property, that by definition, is a second home for a PT resident, should be taxed in the same way?? ie on only 35% of the rental income

dingg

"Surely a UK property, that by definition, is a second home for a PT resident, should be taxed in the same way?? ie on only 35% of the rental income"

Why should the UK follow PT tax rules.?

UK has first dibs on UK rental property profits