The expert:
Bill Blevins is co-founder of tax and wealth management specialists Blevins Franks. For further information visit www.blevinsfranks.com
Tax on rental income
Q. I have bought an apartment in Paphos that I want to rent out for short holiday lets when I am not using it. do I have to declare the income in Cyprus for tax? If so, how much is it likely to be?
Alan Lutterworth, Norwich
A. As a UK resident (but non-resident of Cyprus) who is receiving rental income from a Cyprus property you would be subject to Cypriot income tax (with credit for this in the UK). You would not, however, have to pay the other form of income tax in Cyprus, known as defence contributions. You will also be subject to UK income tax on the income less expenditure wholly and exclusively incurred for the purpose of letting the property at your marginal rate of tax in the UK (either 20 per cent or 40 per cent).
You will be allowed to deduct the following from the net taxable income: 20 per cent of the gross rents, 3 per cent depreciation on building costs (not land), and interest on any loan to acquire a property for rental purposes. You will be taxed at the income scale rates, which for 2008 were 0 per cent on taxable income earned up to 19,500. Above that, the rates are 20 per cent, 25 per cent and 30 per cent. This is per person, so if you own the apartment jointly, you have to have taxable income of over 39,000 before tax is payable.
If you are going to use your apartment for holiday lettings, permission must first be obtained from the Cyprus Tourism Organisation.
Capital Gains Tax on Turkish property
Q. I know you get quite a few questions about Capital Gains Tax, but I really need to find out about Capital Gains Tax in Turkey. I bought a place in 2004 when I thought it was going to join the EU. Five years later it hasn't joined, and with the economic crisis I need to sell the property to raise some cash. What are the tax rates in Turkey and is there an allowance?
Ben McCallum, London
A. As the property is located in Turkey, any gain (the selling price less the acquisition price, adjusted for inflation) on disposal is taxable in Turkey.
Property in Turkey acquired prior to 1 January 2007 is exempt from Capital Gains Tax if it has been owned for four years (otherwise the exemption only applies if held for five years). The gain is subject to personal income tax at progressive scale rates of 15 per cent, 20 per cent and 35 per cent and is therefore added to any other Turkish income. There was a tax-free allowance of YTL 6,800 in 2008 (YTL 6,400 in 2007).
The tax return must be submitted by 25 March following the end of the Turkish tax year (the calendar year) in which the property was sold, and the tax is paid in two equal instalments: half at the date of filing the return and half four months later.
If you are a UK resident you will also be liable for UK Capital Gains Tax of 18 per cent. There is a tax-free allowance for 2008/9 of 9,600. As the UK has a double tax agreement with Turkey, any tax paid in Turkey can be offset against the UK liability to avoid you being taxed twice on the same gain.
This article was published in the May 2009 issue of A Place in the Sun magazine. To order a back issue call +44 (0) 20 3207 2920 or to subscribe click here.