Ask the expert: Tax and property abroad

This week's expert is Neil Wright from PricewaterhouseCoopers

BBC News Online's Ask the Expert column gives readers a chance to have their financial questions answered.

This week, Neil Wright, director of personal financial planning at PricewaterhouseCoopers, helps Your Money reader Susan.

Susan would like to know what the tax implications of buying a French holiday home are.

Neil Wright writes:

Presuming that you remain a UK resident, buying a property in France, in theory, makes you liable to pay tax in two different countries.

If you were to let the holiday property, then the income received would be liable to UK income tax.

In addition, the property would form part of your estate for UK inheritance tax purposes on your death.

And if you were to sell the property, you would be liable to capital gains tax on any profit made.

DO YOU HAVE A QUESTION? Send your questions to our experts

Double tax

As the property is located in France, the French authorities will want you to pay tax on any income or capital gain arising from it.

Therefore, if you let the property you will be liable to French income tax at a maximum rate of 35%.

If you sell the property you may be liable to French capital gains tax.

Furthermore, you may be liable for French wealth tax at an annual rate of 3% of the fair market value of the property.

The purchase of the property can be subject to a real estate transfer tax at a rate of nearly 5%.

You should also bear in mind that you may also be liable for local government "habitation" tax.

Good fortune

However, fortunately for your plans, the UK and France have entered into a double tax agreement.

This agreement means that you will be able to offset any tax you pay in France against the equivalent tax due in the UK.

As a result, if the tax liability in France is greater or equal to the tax bill in the UK, you pay no tax in the UK.

But it is worth remembering that if you choose to permanently move to France, the authorities will tax you on your non-French assets and income as well as your French assets and income.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.