Offsetting foreign income

If you let a property abroad, you must report the income received to the local tax authorities as well as to HMRC. You should report overseas rental income on the foreign income pages of your home country tax return, but you can offset the foreign income tax you pay on the property against your home country income tax liability. Generally, your tax home is the general area of your main place of business or post of duty, regardless of where you maintain your family home. If you do not have a regular or main place of business because of the nature of your work, then your tax home may be the place where you regularly live.

In order for your foreign earnings to be excluded from your tax return, any income must meet the IRS foreign earnings exclusion tests. Usually, the foreign earnings exclusion from your tax return does not include investment income such as interest, dividends, capital gains, pensions, annuities, gambling winnings, alimony, or amounts attributable to certain employee trusts. If you are sole proprietorship or partnership and both capital investment and personal services are factors in producing your foreign earnings, your excludable foreign earnings from your tax return is the smaller of the value of your personal services or 30% of net profits.