Holiday home sale – is the profit in £ or €?

A common cause of confusion for UK residents when selling a foreign holiday home is the UK tax treatment of the gain, especially where there doesn’t appear to be a profit.

Currency gains

For example, a Spanish holiday home is purchased for €250,000 and sold a few years later, also for €250,000. There is no gain in Euros but there may be gain (or loss) in Sterling. That is because the cost and proceeds are converted into Sterling on the respective acquisition and sale dates, so currency fluctuations will cause a UK tax issue.

The case law on this point can be found in a 1981 case Bentley v Pike and, from 1993, Capcount Trading v Evans. HMRC’s view can be found here.

Foreign taxes

Other points to remember are local and foreign taxes, including withholding taxes on the proceeds. Double tax relief usually is available to offset foreign tax against the UK tax. Further care is required if the property is held in a structure, such as a UK or overseas company (or trust), as the tax position can be unexpectedly complex and penal.

Foreign advice

It is important that foreign tax and legal advice is taken – for example, having a Spanish will for Spanish assets, to prevent the forced heirship rules applying.

For US, French and Spanish property, I have links to UK advisers who can advise on the foreign tax position. That can be better than relying on a local adviser, who may not have a working knowledge of the UK rules.

What do HMRC know about foreign assets?

Finally, with the common reporting standards automatic exchange of information between most countries’ tax authorities (being phased in between 2015 and 2018), HMRC has access to foreign ownership details, which will trigger more enquires into such properties to identify undisclosed income and gains.

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