Worried about not paying the right amount of tax on a holiday home

Q. I own a modest holiday home abroad which, when I’m not using it, is usually let out to cover some of the running costs. I’ve always assumed that as it is overseas rent, it’s not taxable in this country – can you help please as a friend thinks I may have got this wrong?

A. Your friend is correct. As you are resident and domiciled in the UK, then you are taxable on your worldwide income and should be declaring the foreign rents and paying tax on this income.

This is a fairly common situation and HM Revenue and Customs is about to get tougher on those not paying the right amount of tax on their offshore assets.

Some time ago, HMRC introduced a ‘Worldwide Disclosure Facility’ for individuals and companies to disclose undeclared UK taxes in relation to offshore assets such as the rent from your holiday home.

HMRC is now receiving financial information from over 100 countries worldwide and is beginning to work through the details it holds. It is also comparing this information to the amounts declared by taxpayers.

Additional tax may be payable if taxpayers have received overseas income such as:

• Interest on overseas bank accounts
• Dividends from overseas shareholdings
• Rental income from overseas properties including holidaytimeshares
• Gains from the disposal of overseas properties

As you have overseas income from at least one of the above sources that has not already been declared, I would advise you to seek good professional advice, as a matter of urgency, as it looks like you may be able to take advantage of the lower penalties available under the ‘Worldwide Disclosure Facility’ before 30 September 2018. You should be aware that, from 1 October 2018, much tougher penalties of up to 200% of the tax not paid can be charged on undeclared overseas income so you really do need to hurry.

Remember that a good accountant can help you to put things right and can also make sure you can deduct appropriate expenses from the overseas rent to help reduce the amount of tax you may owe.

As with all things tax, it does make sense to take good professional advice.