Foreign Property

[Kellis]

We have a house in France which we are letting out this season for the first time. We have spent years and loads of cash renovating and furnishing it. Please can anyone tell me what if any allowable expense can we claim against income tax for all the work/cash that has gone in over the last few years or can we only claim the expenses as they occur this year? Also can anyone clarify the 10% wear and tear allowance for foreign property- we will be paying all rates, water and electricity bills - do these have to be deducted from the rental income before deducting the 10% allowance?

Kerry

[Tax Accountant]

We have a house in France which we are letting out this season for the first time. We have spent years and loads of cash renovating and furnishing it. Please can anyone tell me what if any allowable expense can we claim against income tax for all the work/cash that has gone in over the last few years or can we only claim the expenses as they occur this year? Also can anyone clarify the 10% wear and tear allowance for foreign property- we will be paying all rates, water and electricity bills - do these have to be deducted from the rental income before deducting the 10% allowance?

Kerry

(1) All expenses incurred prior to commencement of letting the property are not eligible as these were not incurred in your lettings business.

(2) Furnished Lettings wear & tear allowance is a concept for UK lettings income. I am not sure if this has any basis for foreign countries. As far as the UK is concerned, you would deduct the utility bills before calculating the 10% wear and tear allowance.

Ramnik

[Tristan]

The expenditure prior to commencing letting should be allowed as "pre-trading expenditure" provided certain conditions are met (i.e. incurred in the previous 7 years, can't be claimed as a deduction against something else, and would have been allowed as a deduction if you had been letting).

Therefore, any capital expenditure can't be set against the rent. Any revenue expenditure incurred to make it nice while you stayed there is not allowable. But, if you have revenue expenditure which is wholly and exclusively for the purposes of letting the property, then it should be allowable in year 1 of letting.

As for wear and tear, I can't recall seeing anything that would stop you claiming on overseas rental income, so it would be subject to the same rules.

Bear in mind that foreign rent is a different source to UK rent, so you can't automatically offset losses etc if you have other rental income in the UK. Also, overseas property can't qualify as a Furnished Holiday Let for tax purposes.

You should check whether you have tax to pay in France. Also, most people buy French property via a company structure (usually an SCI, to get around French heirship rules). If you've done this you might want to check any French tax payable by the SCI. Using an SCI can also bring with it a load of UK tax problems if you have personal use of the property.

Hope this helps.

[Tax Accountant]

I stated earlier that:

''Furnished Lettings wear & tear allowance is a concept for UK lettings income. I am not sure if this has any basis for foreign countries. As far as the UK is concerned, you would deduct the utility bills before calculating the 10% wear and tear allowance.''

If this was not clear, I meant that the foreign tax authority may not allow the wear and tear allowance in calculating your local tax of the country in which the property is situated.

Ramnik