wellinever

sorry for any confusion..my question was .....why would PT not tax a UK rental income in the same way as it does a rental property situated in PT. ie on 35% of the total gross rental income, allowing 85% to be accepted as a cost.and of course they give that to NON resident property owners, as well as residents of PT

Red Eric

If the property is situated in PT, you have options regarding tax treatment.

There are reasons, as I'm sure you can appreciate, why such options might be made available with regard to property situated in PT. I'm not about to dive in to find out too much background on that matter as I've no particular interest in it.

It may be (again, I don't know for sure) that rental income paid to a resident of PT with regard to property situated elsewhere doesn't offer that same, or any, flexibility. A perfectly understandable state of affairs, since why would PT (for example - I don't know whether this is indeed the case) offer a preferential rate of tax designed to encourage the letting out of property for certain purposes to the owner of property located elsewhere?

Plus, as we have touched on before in a different thread, the regime you choose when registering an AL for tax purposes determines the eventual manner in which any capital gains might be treated should you decide to dispose of it - something which is irrelevant when it comes to foreign-sited property.

wellinever

I think you are correct Eric.
Yes I dont see why Portugal would do that, but at the same time, there is an understanding by the Portuguese AT that there are extra costs over and above Tax to pay when letting out a property anywhere, in their case to the tune of 85% of the income.
If it is that PT would want to tax me on the total gross rental income less just the tax paid in the UK, then that extra tax in PT would make it hardly worth the effort and risk.
Clearly I need to talk to a PT tax expert on this subject, before any decision taken.

Red Eric

If they tax on 35% of the income under one of the regimes, it's 65% (not 85%) they're conceding as costs.

But there are also options not to have it taxed as a business activity (Cat B) but rather to have it taxed under its own category (F), with a choice of taxing at scale rates or taxing at a special 28% rate after deductions. It's up to the individual to choose the regime which suits them best. There are also separate inducements for residential lettings.

Pulaski

Do not try to apply logic to tax rules. No, I'm not joking. There is no inherent logic to tax rules.

I have had similar discussions in the US forum in the past, and been challenged by people who discover that under US market conditions and rules, that if you take market rent, and make all the allowable deductions, including at least one that is mandatory (depreciation), you often end up with a tax loss, not a taxable profit. At which point they say "that can't be right!" However, it can (be right), and it is - it is not the tax payers' job to question the rules, they just have to follow the rules, no matter how idiotic they seem.

The fact is that most countries rewrite their tax rules fairly frequently, with minor tweaks every year. Every change builds on the rules from the year before, and rules get changed at different times on different income sources. So not only are taxes often calculated in inconsistent manners, in reality it would be more surprising if the rules were internally consistent. .... So back to your point, I suspect that the rules surrounding tax on rental properties were written at a different time, and with different objectives, to the rules for tax on second homes.

TonyJ1

If you have the NHR, there is no requirement that the other country taxes it. It will be tax free in Portugal whilst you have the NHR status (provided the tax return is completed properly - not always done competently)

ricko

I have seen posts mentioning the NHR qualification:

providing it MAY be taxed in the other state (in our case, the UK)

Is there any income that is not taxed by the UK, and thus would be liable for Portuguese tax?

TonyJ1

Not quite sure what you mean - there a few exceptions I can think of, is if your are for example, a partner in a partnership (and depends what the partnership is invested in) - depending on how it is set up, it might be tax free in the UK, and would be taxable in Portugal.

On the other hand, though the dta allows the UK to tax dividends, such as dividends on stock exchange listed shares, the UK does not 'effectively tax these, and they are tax free in Portugal. The same if you have say an investment earning interest therough an ISA - not taxed in the UK, not taxed in Portugal whilst the taxpayer has the NHR tax status. (I am aware that once the taxpayer becomes tax resident he is not allowed to make further investments into the ISA). On the other hand, if you earn capital gainsfrom the disposal of financial investments within the ISA, though tax free in the UK, it will be subject to tax in Portugal

ricko

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Are the dividends tax free only for those with NHR, so dividends are treated in the same manner as the interest you mentioned?

TonyJ1

''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 might suggest that both the 'contabilista' (I place the inverted commas on purpose), may need to learn to read. There is a significant difference betweeen 'rendimento liquido' (net rental income) (see Anexo J - block on foreign rentals) and rendimento illiquido (gross rentals).

And his knowledge of international tax matters probably can be classified in the same category as his reading ability - Portuguese tax paid by a resident on UK income cannot be claimed against UK tax - it is the other way around. Does not even require common sense.