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HMRC internal manual

Property Income Manual

HM Revenue & Customs
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Rent from property outside the UK: IT cases up to 2004-05

General guidance on the taxation of income under Case V can be found in the International Manual.


Rent and other receipts from properties outside the UK continue to be taxed separately under Case V of Schedule D. But for 1995-96 onwards the profits or losses are normally calculated just like those of a Schedule A rental business. That is, like Schedule A, Case V profits and losses are computed using the principles for a trade within Case I of Schedule D.

Thus, the other parts of this manual generally apply to receipts and expenses of properties outside the UK as well as those within the UK. But the Case I approach does not apply if the taxpayer is entitled to the benefit of the remittance basis for overseas income - see below.

Case V profits or losses are not combined with the Schedule A rental business profits or losses; they are taxed separately and losses on one can’t be set against profits on the other.

The new rules don’t apply to a property if it ceased to be let in 1995-96. The old Case V rules apply to the end.

The special rules for furnished holiday lettings (see PIM4100 onwards) don’t apply to overseas properties.

Case V rental business basis periods

The Case V basis period rules are a little different from those for Schedule A.

  • The current, fiscal year basis applies to income from properties that were first let on or after 6 April 1994. The basis period is therefore the year to 5 April, the same as for the new Schedule A. For example, the profit of the year ended 5 April 1997 is charged for the tax year 1996-97.
  • The previous year basis (including for 1996-97, the transitional rules) applies for letting income from any property which first gave rise to income before 6 April 1994. But for 1997-98 and later years all properties are charged on the current, fiscal year basis (the year ended 5 April).
  • Thus, from 6 April 1997 the Case V basis period rules will all be the same as for Schedule A although the computation and charge will remain separate.

These rules apply separately to each overseas property for 1995-96 and 1996-97. So some may be on one basis and some on another until 1997-98.

Case V rental business - computing profit

The rules for computing the amount of the Case V rental profit or loss in the same way as for Schedule A, apply for 1995-96 and later tax years. Every property outside the UK has its profits computed using Case I principles for 1995-96 and later years whatever basis periods are used.

This means that the Case V profit or loss for a property for 1995-96 will either be based on the receipts and expenditure of the year ended 5 April 1996 or, where the previous year basis still applies, those of the year to 5 April 1995.

For 1997-98 and later years the taxpayer computes the profit or loss for the rental business as a whole and not the result for individual properties. But they will need to make separate computations for tax credit relief purposes. This is to ensure that the overseas tax they pay on income from a property in one foreign country is only set against the UK tax on that property; they can’t set that foreign tax against UK tax due on income from a property in another country.

Case V travel

There are special rules for travel connected with overseas trades. These don’t apply to rental income. But deductions are due for travel costs on the same basis as for Schedule A. That is, the taxpayer must be able to show that the travel was incurred wholly and exclusively for business purposes and not (wholly or partly) for some other purpose (such as a holiday). There are more details in PIM2210.

Case V premiums

The Schedule A rules for charging premiums also apply to premiums obtained for overseas properties from 6 April 1995. But the charge is made under Case V of Schedule D. The premium rules are outlined at PIM1200 onwards, (FA95/S41 (4)).

Case V & capital allowances

Capital allowances are available but normal capital allowances rules apply. For example, there is a rule which denies industrial buildings allowance for a building outside the UK unless it is used for the purposes of a trade which is taxable under Case I of Schedule D. There is more detail at PIM3000 onwards, (FA95/S41 (3), CAA01/S15 & CAA01/S282).

Capital allowances will not be due against income from overseas let property for the years 1995-96 and 1996-97 if the income is chargeable on the previous year basis (including the transitional provisions).

Case V & losses

No statutory relief for Case V losses is available for years up to and including 1997-98. But, by concession, any loss on an overseas property (including caravans and houseboats) can be carried forward and set against future profits from the same property. The loss can’t be set against any other income of the same year. This means, in particular, that each property has to be looked at separately and a loss on one can’t be set against a profit on another, (ESC/B25).

For 1998-99 and later years new loss rules apply to Case V rental income. All the overseas properties are treated as a single Case V letting business. Hence excess expenditure on one overseas property is automatically set against surplus receipts from other overseas properties. Any overall overseas rental business loss can be carried forward and set against future Case V rental business profits; but it can’t be set against Schedule A rental business profits or against any other income, (FA95/S41 (8)).

Any losses from overseas let property that are unrelieved at 5 April 1998, including any unrelieved losses incurred on or after 6 April 1995 on properties where the letting ceases before 6 April 1998, may be regarded as available (under the terms of ESC/B25) for carry forward and set against the income from the overall letting business in years 1998-99 onwards.

Remittance basis

Overseas property income is taxed on the remittance basis where the rental income belongs to:

  • a person domiciled outside the UK,
  • a Commonwealth citizen or a citizen of the Irish Republic who isn’t ordinarily resident in the UK.

No loss can ever arise on income taxed on the remittance basis.

Where income from overseas let property is chargeable on the remittance basis, the new rules do not apply and profits should be calculated using normal Case V rules.

Case V tax credit relief

Normally, the tax authorities of the country where the let property is situated will also charge tax on the letting profits. This means that a UK resident landlord will pay tax on the same profits both here and abroad. But the double charge is relieved by deducting the overseas tax paid on the property income from the UK tax due on the same income. This is done either under the terms of a Double Taxation Treaty with the overseas country or, where no treaty exists, under separate UK rules.

Foreign tax

If the overseas income has suffered foreign tax and a claim to tax credit relief is made, it will be necessary, for the purposes of the source by source rules (seeINTM161210), to identify the amount of UK tax attributable to income from each particular property. Where, therefore, tax credit relief is claimed, separate computations of profits and losses for each property will be required.

For the purposes of calculating tax credit relief, losses should be deducted in the order most favourable to the taxpayer’s claim. Normally, this will mean that losses should be allocated first against the source that has suffered the lowest rate of foreign tax - see the example below.


A taxpayer has income assessable for 1998-99 from properties in the following countries:

  Country A Country B Country C Total Case V
Income £6,000 £4,000 £6,000  
Expenses £1,000 £6,000 £4,000  
Profit (loss) £5,000 (£2,000) £2,000 £5,000

The following amounts of foreign tax have been paid:

  Taxable Rate of foreign tax Tax deducted  
Country A £5,000 10% £500  
Country B nil      
Country C £2,000 30% £600  
Total foreign tax     £1,100  

Assuming that the Case V income is wholly chargeable at the basic rate of IT (and that thebasic rate of IT is 23%), the IT due will be £5,000 x 23% = £1,150.

Calculation of tax credit relief

Allocate losses to the income that has suffered the lowest rate of foreign tax (income from Country A):

Country A Profit £5,000    
  Losses £2,000    
  Net £3,000 @ 23% = £690  

All of the foreign tax paid of £500 relating to Country A is available for tax credit relief.

Country C Profit £2,000 @ 23% = £460

Although foreign tax of £600 has been paid, the amount available for tax credit relief is limited to the amount of UK tax charged on the same income (i.e. £460).


IT due £690 + £460 = £1,150  
Tax credit relief £500 + £460 = (£960)  
Net UK tax payable   £190  

The balance of Country C’s tax of £140 (£600 - £400) cannot be set off against the IT attributable to the Country A income and cannot be repaid.

Note that if all or part of the Country B loss of £2,000 had been set against income from Country C the overall tax bill in the UK would be higher.