Is Interest Deductable When Calculating Capital Gains On Foreign Property Sales?

[Nick__]

Is interest deductable when calculating capital gains on foreign property sales?

I’d like to gain a basic understanding initially if possible – before seeking professional advice.  To provide a bit more clarity by example:

For a UK resident.

If a foreign property is purchased for £200k, has an interest portion of the mortgage repayments of £10k per year, and is rented out at 5k per year, and held for 5 years before selling at a price of £225k.  Say for the example it had a total amount of other deductions (such as stamp duty when purchasing, legal fees, etc) of 30k.

Capital Gain/Loss = Sale Price – Purchase Price – Other Deductions – Interest Paid + Rent Received

Capital Loss of £5k = 225k – 200k – 30k – 50k + 25k

Or is the Interest Paid on a mortgage non tax deductable in which case it would be a capital gain of 45k?

Also – do these interest losses for the foreign property need to be accounted (declared on a personal tax return in the UK) on a yearly basis?  Or is it ok to simply account for them at which point the property is sold?

I would assume that if there is any capital gain that normal capital gains tax rules in the UK would apply.  If a capital loss occurs how is this treated in the UK (i.e. is it deductable against future capital gains?).

Many thanks for any help and useful information in advance!

[Ascii]

Odd question to ask as a first post.

My understanding:

Interest is offset again income.

Capital expenditure is offset against capital gain.

You would probably be better off asking at UKBF though.

[sleepwello'nights]

I’d like to gain a basic understanding initially if possible – before seeking professional advice.  To provide a bit more clarity by example:

For a UK resident.

If a foreign property is purchased for £200k, has an interest portion of the mortgage repayments of £10k per year, and is rented out at 5k per year, and held for 5 years before selling at a price of £225k.  Say for the example it had a total amount of other deductions (such as stamp duty when purchasing, legal fees, etc) of 30k.

Also – do these interest losses for the foreign property need to be accounted (declared on a personal tax return in the UK) on a yearly basis?  Or is it ok to simply account for them at which point the property is sold?

I would assume that if there is any capital gain that normal capital gains tax rules in the UK would apply.  If a capital loss occurs how is this treated in the UK (i.e. is it deductable against future capital gains?).

Briefly the rules are pretty much the same as for a UK property except that you may be able to set off tax paid to another tax jurisdiction against your UK tax liability.

Rental income less costs incurred, including mortgage interest, have to be declared on your tax return each year, assuming you are liable for UK income tax. They are income and taxed as income. A capital gain is a separate tax on the increase in price of an asset.

Any capital gain is taxed separately after the property has been disposed of.

Capital Gain/Loss: Sale Price – costs of sale = Disposal proceeds.

Purchase Price + costs of purchase + any refurbishment costs + improvements (provided they are still there when the property is sold) = Acquisition costs.

CGT Gain/(Loss) = Disposal Proceeds - Acquisition costs.

If there is a loss on disposal it has to be claimed within 4 years of the end of the tax year of the loss.

[Nick__]

Thanks for the replies.  Much appreciated.

Quote “Rental income less costs incurred, including mortgage interest, have to be declared on your tax return each year, assuming you are liable for UK income tax. They are income and taxed as income. “

What happens when the interest exceeds the rental income?   Does this need to be declared on your tax return?  Can this ‘loss’ be deducted from other income?