rental tax

[emma]

My husband and I just bought a house on vis island which we plan to rent out over the summer. Does anyone know what tax I'd be liable for in Croatia? I heard it was 25% income tax but does this only kick in once you've reached a certain threshold?

I know, i know, you'll probably all say go to an accountant - in which case, any recommendations for a Croatian accountant in Split who speaks English? Or do Croatian lawyers manage these things?

Hoping to avoid paying exorbitant fees to a property management agency (most likely set up by Brits) for this.

Thanks
Emma

[Culchie]

If you are based in UK and pay income tax there, it is treated the same as if you rented out a house in UK.

You are 'supposed' to declare your extra rental income to the UK tax office, and you pay whatever you pay in UK to the UK inland revenue.

[ChrisC]

Culchie said:

You are 'supposed' to declare your extra rental income to the UK tax office, and you pay whatever you pay in UK to the UK inland revenue.

"Supposed"? Whatever are you implying..?

[Culchie]

I'm not implying anything, you rent out property, you pay tax.

[emma]

Thanks Culchie. I guess then my only question is, am I 'supposed' to notify the Croatian authorities about all this too?

We're bound to attract some interest from the local police as foreigners making money from Croatian property.

Vis people nice but nosey!

[Culchie]

Strictly from a tax point of view, I don't think it has anything to do with the Croatian authorities. Any additional income declaration you wish to make will be to the UK tax authorities.

What it probably does matter however, is in areas of insurance etc... You need to be careful that you don't invalidate your policy by declaring one thing, but the reality is another.

[Graham - Bosmere]

Simple answer Emma - if you charge persons to stay in your property you need to register with the local authorities in Croatia and to pay the local visitors/city taxes.

[Culchie]

Hi Graham,

Regarding Income Tax, I disagree, it is whichever country you are tax resident in.

Local Tourist Taxes, Rates etc... that's a different kettle of fish.

[Graham - Bosmere]

Culchie, my comment was regarding letting local authorities know what you are doing. I am no income tax expert! However those that purchase using the company method may well have additional problems. At the end of the day it is best to get a good accountant with professional liability rather than asking for what in the most case are educated guesses or opinions.

[Culchie]

Graham,

My answer was in regards to the question.....on Income Tax.

And the answer is not an educated guess.

Croatia has a recipriocal agreement with the UK, so if Emma is a tax resident in UK (over 183 days residence), then her income tax is payable to the UK government upon declaration of Income.

Your advice on getting a good accountant holds good though.

[matt]

Hi Emma,

Just to, let you know that you will find everything you needed to know about Letting your property...including all tax implications in Martin Westby's book 'How to buy a property in Croatia'. The relevant chapter is Ch5. You can buy the book (£15.00) frrom his website, which I think is www.Croatia-HolidayandHome.co.uk

Hope this helps.

Matt

[Culchie]

Matt,

You see that's where you are wrong.

I bought Martin Westby's book, and the advice given on Income Tax is non-existent, and the advice given on Capital Gains Tax is also incorrect.

The book states that if you sell property in Croatia after 3 years, there is no CGT payable....... however, as a UK (or Irish) taxpayer, you must pay CGT as the sale of your croatian property the same as if it were a UK property.... and the amount of times you see Croatia portrayed as CGT Tax free is unbelievable.

[matt]

Culchie

Are you saying that you have to pay CGT in Croatia or UK? If it is the UK, how do the UK IR become aware of the sale? If you declare tha sale, and you are paying UK CGT remember that you can 'roll over' your gain onto your next purchase. Also don't forget your annual CGT allowance which is not insignificant.

Don't know aboiut Croatia CGT rules, sorry.

Matt

[Culchie]

Matt, if you are a UK tax resident, and you sell a property in Croatia, then you pay CGT to the UK Tax Authority .... fact.


How do they become aware of the sale? ...... You are legally obliged to tell them.

If you don't declare the sale, and don't pay CGT .....then that's your call......but that's why they have Criminal Assets Bureau and Money Laundering Operations.....it's illegal.

The ball is in your court.

[matt]

Culchie,

You have'nt made any reference to the two options ie 'roll over' & annual allowances. Both combined make it possible to sell a property & (if you are purchasing another) pay no CGT.

Any gain you make is effectively added to the value of the next property you purchase, and only then, when you sell that property, do you incurr any CGT liability. Of course, if you plan to purchase again you can of course roll over your gain once more.

On the subject of annual allowances, I cannot remember what the true figure is, but I believe you can ignore your first 8-10 k of gain as your annua lallownace. Brown then introduced a staggered CGT threshold, so you pay a reduced % (ie not 40) on the next portion of gain (think it's arround 16k).

Clearly it would be advisable to claim your annual allowance & roll over the remianing gain towards your next capital purchase.

I would never encourage anyone to be anything other than totally honest with IR..honest!

Finally, Westby dicusses the tax implications(incl Income Tax) of letting on p113 & App 13.

To anyone that is reading, the information above is from the best of memory having studied Tax law a few years ago & time may have dulled my memery (as has many other things)!

Matt

PS usefull thread Emma!