Owning property outside the UK and receiving rental income creates UK tax obligations if you're UK resident. HMRC taxes foreign rental income differently from UK property, and recent changes from April 2025 have fundamentally altered relief options.
This guide explains how overseas rental income is taxed, who pays UK tax on it, how profits are calculated, and how to claim relief for foreign tax already paid.
What does it mean to Receive Rent from Property Outside the UK?
Overseas rental income means you own or have an interest in property outside the UK and generate income from letting it. This includes rent, lease premiums, service charges, and income from granting rights over the land. The property's physical location determines classification as foreign property income not your residence or where you receive payments.
Property outside the UK = foreign rental income, treated differently from UK property.
When is Rental Income from Overseas Property Taxable in the UK?
Rental income from property outside the UK is taxable in the UK only if you are a UK resident. If you are not a UK resident for tax purposes, the UK does not charge income tax on your foreign rental income.
If you are UK resident: | If you are not UK resident: |
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From 6 April 2025, all UK residents are taxed on the arising basis for their worldwide income and gains. This means you pay UK tax on your foreign rental profits in the year they arise, whether or not you transfer the money to the UK. This represents a significant change from the previous remittance basis system, which we will explain in context later.
What is an Overseas Property Business and Why does it matter?
An overseas property business is identical to a UK property business, except the land is outside the UK. All your foreign rental activities regardless of how many properties or countries are combined into one overseas property business.
For example, an apartment in Spain, a villa in France, and a house in the United States, all these lettings are combined into one overseas property business. You calculate a single profit or loss figure across all your foreign properties.
Overseas and UK property businesses are two separate, not one combined operation:
Aspect | Treatment |
|---|---|
Profit calculation | Calculated separately for UK and overseas businesses |
Loss relief | Overseas losses cannot reduce UK property profits |
Expense allocation | Expenses on overseas property cannot reduce UK rental income |
Tax reporting | Reported as distinct income streams on your tax return |
This separation applies even if you operate both businesses as the same individual. However, if you hold property in different legal capacities for instance, personally, through a partnership, and as a trustee each capacity creates a separate property business that cannot share profits or losses with the others.
How are Profits and Losses calculated for Overseas Property Income?
You compute profit in the same way as if you were calculating trading profit (deducting allowable expenses from rental income) but you are not treated as carrying on a trade for other tax purposes.
Applying Overseas Property Law Concepts
When foreign property law differs from UK law, HMRC interprets the overseas legal concepts to correspond with the equivalent UK property law. This is particularly useful when applying rules around lease premiums, which exist in UK property taxation but may not have direct equivalents in foreign legal systems.
For example, if a foreign lease arrangement involves an upfront payment that economically functions like a UK lease premium, HMRC applies the UK lease premium rules to determine how much is taxable as income rather than capital. |
What Receipts are Included?
Receipts from your overseas property business include rent payments, lease premiums, service charges that you receive and pay out, and other payments connected to granting rights over the property.
What Expenses can be Deducted?
You can deduct expenses incurred wholly and exclusively for the purposes of your overseas property business. These include repairs and maintenance, insurance, letting agent fees, accountancy costs, and interest on loans taken out to purchase or improve the overseas property (subject to specific restrictions explained later).
Cash Basis vs Accruals Basis
For UK residents who are individuals (not companies), the default method for calculating property business profits from the 2017-18 tax year onwards is the cash basis, where you report income when received and expenses when paid. However, you must use the accruals basis if certain criteria apply, such as if your total property receipts exceed £150,000.
The same cash basis option applies to your overseas property business if you qualify to use it for UK property.
How does Double Taxation Relief apply to Foreign Rental Income?
Property located abroad typically faces tax in that country, creating potential double taxation. The UK prevents this through tax credit relief; you deduct foreign tax paid from UK tax due on the same income.
How tax credit relief works?
The relief operates either under the terms of a Double Taxation Treaty between the UK and the foreign country, or, where no treaty exists, under UK domestic relief rules. In both cases, the principle is the same: foreign tax already paid reduces your UK tax liability pound for pound.
Tax Credit Relief Calculation
The process:
Limitation:
The credit cannot exceed the UK tax attributable to that foreign income. If the foreign tax rate is higher than the UK rate, you cannot claim a refund of the excess, you simply reduce your UK tax to zero on that income.
Example: Your Spanish rental property generates £20,000 profit. Spanish tax on this income is £3,000. UK tax on the same £20,000 profit is £4,000. You can claim £3,000 credit against the £4,000 UK tax, leaving £1,000 to pay to HMRC. |
Source-by-source calculations
Where you claim tax credit relief, HMRC applies source-by-source rules. This means you must identify the UK tax attributable to income from each particular property separately.
If you have multiple overseas properties and you're claiming tax credit relief, you will need separate profit calculations for each property. This allows HMRC to match the foreign tax paid on Property A against the UK tax on Property A's income, and similarly for Property B, Property C, and so on.
How losses affect tax credit relief?
Where your overseas property business includes both profitable and loss-making properties, losses should be allocated in the order most favorable to your tax credit relief claim. Normally, this means allocating losses first against the income that has suffered the lowest rate of foreign tax, preserving the higher foreign tax credits for use against UK tax.
Important: Credit relief is available only for tax paid in the country where the property is located. If overseas law determines that the property's source is somewhere other than where the property physically sits, complications can arise, though for rental property this is unusual since rents have their source in the country where the property is situated.
How was foreign rental income taxed under the remittance basis?
Until 5 April 2025, certain UK residents could claim to be taxed on the remittance basis rather than the arising basis for their foreign income. Understanding this historical system provides important context for the current position, particularly if you have unremitted foreign income from earlier years.
Who could use the remittance basis?
Before 6 April 2025, individuals who were either domiciled outside the UK or not ordinarily resident in the UK could claim for their relevant foreign income including overseas property income to be taxed on the remittance basis rather than when the income arose.
How the remittance basis worked?
Under the remittance basis, foreign rental income was not taxed when it arose overseas. Instead, it was only taxed if and when you remitted it to the UK. Remittance meant bringing the income to the UK, receiving it in the UK, using it in the UK, or using it overseas to pay for services provided in the UK.
If you kept the foreign rental income outside the UK and never used it in ways that constituted a remittance, the UK tax charge was effectively deferred indefinitely. You chose each tax year whether to claim the remittance basis or use the arising basis.
The end of the remittance basis
From 6 April 2025, it is no longer possible to use the remittance basis. All UK residents are now taxed on the arising basis for their worldwide income and gains. This fundamental change means foreign rental income is taxed in the year it arises, regardless of whether you bring it to the UK.
Treatment of historic unremitted income
If you used the remittance basis in tax years before 6 April 2025 and have foreign income that arose in those earlier years but was never remitted, that income can still be taxed at the usual rates if you remit it to the UK on or after 6 April 2025. The abolition of the remittance basis does not erase the potential UK tax charge on historic unremitted amounts.
Remittance Basis Timeline
Period | Treatment |
|---|---|
Before 6 April 2025 | Remittance basis available to claim for qualifying individuals |
From 6 April 2025 | Remittance basis abolished. All UK residents taxed on arising basis |
Historic unremitted income | Pre-April 2025 foreign income still taxable if remitted after that date |
How does the FIG regime now affect foreign rental income?
From 6 April 2025, a new relief regime called the Foreign Income and Gains (FIG) regime provides temporary UK tax relief for certain individuals who become UK resident after a period of non-residence. This regime is now the primary mechanism through which some UK residents can obtain relief on their foreign income, including overseas property income.
Who qualifies for FIG regime relief?
You can claim relief under the FIG regime if you are a "qualifying new resident." This means you have come to the UK after a period of at least 10 consecutive tax years of non-UK residence. During your first four years of UK residence, you can claim UK tax relief on qualifying foreign income and gains that arise during those four years.
The relief applies on a year-by-year basis. You decide each tax year within the four-year window whether to make a FIG claim. You are not required to claim every year, and claiming in one year does not commit you to claiming in subsequent years.
Overseas property income as qualifying foreign income
Rental income from your overseas property business is qualifying foreign income for FIG regime purposes. If you make a valid FIG claim for a tax year, you obtain UK tax relief on the foreign rental income that arises in that year.
The relief works differently from the old remittance basis. Under the FIG regime, you receive relief by way of an exemption or credit, rather than by deferring the charge until remittance.
FIG Regime for Overseas Property Income
Eligibility requirements:
Become UK resident after at least 10 consecutive years of non-UK residence
Within your first four years of UK residence
Make a valid claim for the tax year
Effect of claiming:
UK tax relief on foreign rental income arising in the claim year
Relief available for each of the first four tax years of UK residence
Must claim separately for each year you want relief
What is not covered:
Income from property in the UK
Foreign income that arose before you became UK resident
Disqualified types of income (certain specific categories exist)
Special rules for losses and finance costs
Where you make a FIG regime claim for a tax year, special restrictions apply to your overseas property business losses and to residential finance costs (loan interest) related to that business.
If you claim FIG relief in a tax year, you cannot claim relief for losses from your overseas property business in that same year. Additionally, the carried forward losses of the overseas property business are treated as nil.
Similarly, if your overseas property business includes residential property and you've been restricted on claiming full interest relief (under the residential finance cost restrictions that apply to individuals), you cannot claim relief for those residential finance costs for your overseas property business in a year when you claim FIG relief. Any relievable amount carried forward from previous years is also treated as nil.
Critical Restriction: Making a FIG claim means you lose access to overseas property loss relief and residential finance cost relief for that year. You need to weigh the benefit of the FIG exemption against the loss of these other reliefs.
How does this change affect UK residents with overseas rental income in practice?
The shift from the remittance basis to the arising basis, combined with the introduction of the FIG regime, creates different practical implications depending on your circumstances.
For existing UK residents who previously used the remittance basis
If you previously used the remittance basis, this ended on 6 April 2025. Your overseas rental income is now taxed when it arises, regardless of location. You must report annual profits and pay UK tax (with credit for foreign tax paid) at your marginal rates. Note: Pre-April 2025 unremitted income can still be taxed if you bring it to the UK, though a temporary repatriation facility may be available.
For new UK residents arriving after a long absence
If you qualify for FIG relief (see eligibility above), you can claim annual relief during your first four years of UK residence.
During those four years, you can claim annual relief on foreign rental income arising in each claim year. This provides substantial tax advantages during your initial UK residence period, though you must balance this against the loss of overseas property loss relief and finance cost relief in claim years.
After the four-year FIG period expires, you become subject to the normal arising basis like all other UK residents, paying UK tax on your worldwide property income with credit for foreign taxes paid.
For UK residents who never used special reliefs
If you have always been UK resident and taxed on the arising basis, the practical position remains largely unchanged. You continue to report your overseas property business profits each year, pay UK tax on them, and claim credit relief for foreign taxes paid.
The key change is that you can no longer encounter situations where other individuals defer their UK tax through remittance basis claims, which had created complexity in some joint ownership or partnership scenarios.
Practical Impact
Your Situation | Impact from April 2025 |
|---|---|
Long-term UK resident | Continue on arising basis as before; no remittance basis available |
Former remittance basis user | Now taxed on arising basis; report all overseas rental income annually |
New arrival after 10+ years abroad | Can claim FIG relief for first four years; then arising basis |
Historic unremitted income holder | Remitting pre-April 2025 income can still trigger UK tax |
What about Trading Income versus Property Income?
In most cases, renting property clearly falls within the property business rules. However, where the income could potentially be classified as either trading income or property income, HMRC applies a boundary rule that reverses the normal priority.
For overseas income, if receipts could be regarded as either trading income or overseas property income, they are charged as trading income rather than property income. This ensures that property developers or traders who temporarily let property awaiting development are taxed under trading rules, not property business rules.
An example would be a property developer who lets land temporarily while planning permission is obtained. The rent received during that period would be taxed as part of the trading profit, not as overseas property business income.
How are Furnished Holiday Lettings outside the EEA treated?
The special furnished holiday lettings rules that previously applied to certain short-term holiday rentals in the UK and European Economic Area do not apply to overseas properties outside the EEA.
Properties let as furnished holiday accommodation outside the EEA are treated as ordinary overseas property business lettings, subject to the standard rules explained throughout this guide.
From 6 April 2025 for income tax and 1 April 2025 for corporation tax, the furnished holiday lettings rules ceased to apply entirely, so all furnished holiday accommodation wherever located is now treated as part of the standard property business category.
Conclusion
Understanding how HMRC taxes rental income from property outside the UK requires attention to several distinct rules: the separation between UK and overseas property businesses, the requirement for UK residents to report worldwide income on the arising basis, the availability of tax credit relief to prevent double taxation, and the new FIG regime for qualifying new residents. The abolition of the remittance basis from April 2025 represents a fundamental shift toward simplicity, with all UK residents now taxed on their global rental income as it arises, subject to credit for foreign taxes paid and temporary relief for those who qualify under FIG.
Glossary
Overseas property business = All your rental activities from property located outside the UK, treated as a single business for UK tax purposes
Arising basis = Taxed on worldwide income in the year it arises, regardless of whether you bring it to the UK
Remittance basis = Historical treatment (ended April 2025) where foreign income was only taxed when brought to or used in the UK
FIG regime = Foreign Income and Gains relief available from April 2025 for qualifying new UK residents during their first four years of UK residence
Tax credit relief = Relief to avoid paying UK tax twice on the same income already taxed abroad
