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Limited Company

Tax on Rental Income from Abroad

 

With UK citizens purchasing property in the EU, it is good to know the basics of tax on rental income from an EU country.

 

Here, we use Bulgaria as an example. The following are the key points:

 

Bulgaria and the UK have a double taxation agreement. If taxed both in Bulgaria and the UK, you can claim the lower amount of tax back. For example, if you pay £1000 tax in Bulgaria and £2000 tax on the same income in the UK, you can reduce your tax bill by £1000 on your tax return.

 

When the landlord is an individual, including foreign individual, a 10% withholding tax applies. For example, for rental income of £1000, tax is calculated as follows:

 

Taxable amount = Gross rent less 10% allowable expenses = £1000 – £100 = £900

Tax = £900 x 10% = £90

 

The tax needs to be paid the following month within 3 weeks.

 

If the tenant is self-employed or a company, they pay the tax and the landlord receives £910. Otherwise, the landlord is responsible for paying the tax. Either way, the landlord will need proof of tax paid to Bulgarian authorities to claim double taxation relief.

 

If you have a company registered in Bulgaria, which owns the property and collects the rent, the tax will be calculated on the company accounts. Bulgarian corporation tax is 10%. There is no withholding tax on dividends for EU companies and individuals, but underlying tax (i.e. the corporation tax paid) can be reclaimed only if a Bulgarian subsidiary is paying a dividend to a UK parent company.

 

Capital Gains Tax on Sale of Property – Bulgaria

 

UK residents pay capital gains tax in the UK on selling overseas property which is not their main residence. But the UK resident will also pay capital gains tax in Bulgaria. Therefore. He will need to retain all back up to obtain double taxation relief on the Bulgarian tax, if lower than the UK tax. In most circumstances, the Bulgarian tax will be lower.

 

On selling Bulgarian property, UK residents will also pay capital gains tax if:

 

  • The property is not their main residence, but no less than 3 years before the sale.

  • The property is sold within 5 years of buying it

  • Tax of 10% is paid on the taxable amount:

  • Selling price less the higher of purchase price and ‘’property valuation for tax purposes’’ less 10% allowable expenses

 

The property value for tax purposes is calculated by the relevant local municipality in Bulgaria.

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