Can loss from overseas property be set against gain from UK property?

[Lance]

We have recently purchased a UK flat to let. It will probably make a taxable profit even after all tax offsets applied. We have also purchased a house in the USA, which is also let out, but does not cover its mortgage interest payments.
Can the loss on the USA house be used to cancel the profit on the UK flat?

Both have been funded by using the equity in a UK Building Soceity mortgage
on our UK home.
We both reside in the UK and pay tax at 40%.

[Anthony Nixon]

Yes this should be possible. You will be taxed on the basis that you have a business of letting property. This allows you to claim expenses on any property you let against income on others.

Anthony Nixon ATII
Associate Solicitor
Lester Aldridge Solicitors
Russell House
Oxford Road
Bournemouth BH8 8EX

Telephone: + 44 (0)1202 786161
Direct Line: + 44 (0)1202 786155
Fax: + 44 (0)1202 786170
E-mail: Anthony.Nixon@Lester-Aldridge.co.uk
Website: http://www.lester-aldridge.co.uk

[jeremy.newman@ourycl]

Unless I'm missing something, the offset is no possible - rental income from an overseas property is assessed under Sch D Case V, whereas UK rental in come is dealt with under Sch A. There are no provisions that I know of that allow a DV loss to be used to cover a Sch A profit, and I have doubts as to whether loan interest is even deductible against DV income in the first place.

Jeremy Newman

[steve@nunn-hayward.c]

Hi Lance,

From the way you describe your ownership/ involvement in both properties, they appear to be investment rather than "trading". On this basis because the UK tax legislation distinguishes between UK and non UK property income I do not believe a claim to set off the "loss" can be sustatiated.

Depending on your circumstances and plans for similar aquistion's etc, whilst the "foreign" loss may not be used, could use of a Limited Company to hold your UK portfolio shelter Income tax at 20%? I would stress that there are many factors to consider before going down this route and a short term saving may cost in the long run. There are alternatives to this beyond the scope of your initial query.

I would be pleased to assess your requirements if you wished to call.

Regards

Steve Cook, ATII
Tax Partner,
Nunn Hayward, Chartered Accountants
01753 888211