If you do pay tax in a foreign country, it is likely to be allowable as a deduction against any liability you have in this country.

The main reason for buying a property abroad is to use it as a holiday home. Another reason would be to use it as a permanent or occasional retirement home. Other reasons may be to use it as an income-producing investment or an investment for capital growth. In reality, a combination of some or all of these reasons is likely to be behind most overseas property purchases.

Buying a place as an occasional holiday home and leaving it unoccupied for the remainder of the time is probably an expensive way of taking your holidays. However, those who take this approach are probably looking for some capital growth from their investment. If the property is sold at a profit, the gain will be liable to capital gains tax (CGT) in the UK. If it is held until death it will escape CGT but will be added to your estate in establishing the liability to inheritance tax (IHT). If this is your intention, you should certainly consider making a separate will in the overseas country.

Obviously, in the above scenario, there would be no income tax problems as no income would be derived from the property. Indeed, the upkeep of the property would make it a drain on your resources. To cover expenses, many owners would let the property for part of the year, either to friends and family or on a more commercial basis.

You are unlikely to make a substantial profit from letting the property, especially if you have had to borrow to buy it. The rent will be liable to UK income tax but you will be able to claim a proportion of the expenses against it. Such expenses would include the interest on any loan taken out to purchase or improve the property, costs of maintenance, utilities and repairs, agents’ fees etc.

Any rents you receive from overseas properties are treated as a separate letting business from any UK rental income that you may receive. You cannot set expenses or losses of one against the other. Also, even if you satisfy the strict criteria governing the beneficial tax treatment of furnished holiday lettings, overseas properties cannot qualify.

The above brief references to taxation assume that you are resident and domiciled in the UK. If you are not resident in the UK it is possible to avoid income tax on overseas income kept abroad and CGT on overseas gains not brought into the UK. If you are not domiciled in the UK it is possible to avoid IHT on overseas assets unless you have been resident in the UK for 17 of the last 20 years.