Question: I am a UK resident and own a residential property in the UK. I also have a residential property in Holland which I am renting out. Please could you let me know where I should pay income tax from renting out the property in Holland and should I decide to sell it where will I be paying capital gains tax and at what rate? In either case, would all income be taxed? Would I get any allowances and how would the gain be calculated?
Answer: Under the terms of the Double Taxation Agreement, Holland has the right to tax Dutch source net rental income that you receive from your rental property.
In addition, as a UK resident and assuming that you are not claiming the remittance basis, you are liable to UK tax on your worldwide income and gains.
This means that there is the potential for double taxation, but you should be able to claim relief in your UK tax return for any income tax paid in Holland on the same rental income.
There is similar relief for capital gains tax paid on the sale of a property if indeed capital gains tax is payable.
Accordingly the net result of all this is that overall you will generally pay tax based on whichever country's rate is the highest, but you will not pay tax twice on the same income or gains.
A property rental business can usually deduct costs incurred for the purpose of the business from its profits. For gains, the costs of purchase, sale and improvements can usually be deducted.
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