Not sure where to start on doing an Overseas Property Tax return on a Buy-to-Let?

Have you been putting off filing your local tax return? Want some tips from an Overseas Property Investor who did it in Poland?

Well if you are anything like me, there are some things that just seem a bit daunting and get put in the “too difficult” pile, or seem too time-consuming or boring?

Well that was me when I came to do my Polish tax return. How was I going to get started? I knew that I had to do my Polish tax return, before doing my UK one, as I had to declare my Overseas rental income on my UK Tax Return. So I needed to ensure all my allowable expenses had been taken into account, otherwise I was going to be out of pocket. The UK has a double taxation agreement with Poland, so whatever tax is paid in Poland, is offset against any UK tax bill, so you don’t end up paying tax twice.

The first challenge was trying to find a local Polish accountant I could trust, as I was going to do most of the transaction remotely and I wanted to feel as though there was someone at the end of the telephone who was going to respond promptly to my queries, since I was finding my way around a different tax system.

I got a few referrals from my professional network and not many passed the first hurdle of prompt communication, remotely. The advisor I used in the end, certainly knew how to deal with someone from a different nation, asking lots of questions about how everything worked.

Once I realised they could firstly answer all my queries, in fluent English, could guide me through the process and were willing to work quickly, to hit the looming deadlines for me, they were the ones for me.

Comparing timings, Polish Accounts for the Calendar Year must be filed by the following 30^th April. So for January to December 2009 accounts, 31^st April 2010 is the deadline. Polish tax return submissions are before UK tax return submissions, which need to be done by 31^st January following the Tax year, so 31.1.2011 for end of 2009/2010 Tax Year. You get 4 months to finalise annual accounts in Poland and 10 months in the UK. The different accounting periods should also be taken into account.

Naturally, if you are buying a “pure” holiday home, then you don’t need to complete a Tax Return and will be paying local property taxes or local authority charges. It is good to also have an idea on how you might want to deal with Capital Gains Tax or Inheritance Tax, if they become relevant. However if the Overseas property is let out for income, at any stage in the year, then this must be declared. However a foreign home can qualify as a main residence, so you can claim principal private residence relief, to almost wipe out any CGT.

It is always advisable to write a will in the local country where your property is located, to help with Inheritance issues. Whilst UK wills can be written to cover property in other EU countries, it is more efficient and effective to have a separate local one, to cover the property abroad. Remember the Double Taxation Treaty, UK residents pay CGT and IHT on worldwide property income and gains, so this needs to be considered.

However if you are acquiring a buy-to-let, there are income tax issues that need to be considered, just as they would when investing in a buy-to-let in the UK.

The good thing about Poland is that there is the same tax treatment for Overseas tax-payers as for locals, (unlike in some countries where there have been some historical discrepancies on some taxes). Some countries have lower taxes than UK, which means you would pay no more Tax than you would in the UK and some have higher taxes, which means you could lose out.

I was surprised by how many similarities there are between the UK and Polish tax systems, but also intrigued by some disparities. Many countries tax and legal systems are based on the UKs as it is one of the oldest in the world.  To make this quicker for others, I have produced a 2 minute comparison table to highlight some of the key differences. This is not a comprehensive tax guide, more like a quick ready-reckoner to guide people:

Snapshot Overview

Evidently tax treatment is more complicated than is depicted here and readers are advised to seek relevant tax and financial advice

NB: All £ amounts have been given using exchange rates at the time of writing and they do fluctuate. They are provided for guidance only, please check the most up to date exchange rates for the PLN figures quoted

Posted by Louise Reynolds, with some input from Stephen Fay ACA, Fylde Tax Accounting
Property Venture^®

^{Posted 6th April 2010} 

Property Venture^® is an independent, UK-based agent. We help time-strapped investors and holiday home purchasers, buy abroad by guiding through the buying process, so reducing the hassle. We visit the countries you buy in, so we can offer common-sense, grounded advice. Overseas members of NAEA. This means we have been subjected to the membership criteria and have signed up to follow the professional Code of Conduct established to help you, the potential buyer or investor, buy property with confidence