Letting a second home is presented as the way it pays for itself. The gross yield quoted in the marketing is the number before tax, costs and vacancy, and the number that actually reaches your account is a good deal smaller.

The tax element is the one most consistently omitted, partly because it usually involves filing in a country you do not live in.

The property's country taxes the income

The general rule across most tax systems is that income from immovable property is taxable in the country where the property is located, regardless of where the owner lives.

That means a local tax return, in that country, under its rules and deadlines, quite possibly requiring a local tax number and often a local representative. This obligation exists from the first rental payment. It is not triggered by a threshold of profitability and it does not wait until you have made money.

Non-resident landlords are also frequently subject to withholding — the agent or tenant deducting tax at source before you receive anything — which may be a final charge or a payment on account depending on the system.

Then your own country may tax it again

If you are tax resident somewhere else, that country generally taxes your worldwide income, including this.

Relief from paying twice normally comes through a double taxation treaty, which typically gives the property's country the primary right to tax and requires your country of residence to give credit for what you paid. The credit is usually limited to what your own country would have charged, so if the foreign tax is higher you may not recover the difference. How that works is covered in double taxation treaties explained.

The critical practical point is that relief is claimed, not automatic. You have to report the foreign income and claim the credit, with evidence of the foreign tax paid. Failing to report because tax was already paid abroad is a common and entirely avoidable error.

What you can deduct is not what you assume

Systems differ substantially on allowable expenses, and the differences are large enough to change whether a letting is profitable.

Commonly deductible in many systems:

  • Mortgage interest, though this has been restricted or removed in several countries
  • Management and letting agency fees
  • Repairs and maintenance, as distinct from improvements
  • Insurance
  • Local property taxes and service charges
  • Depreciation, where the system provides for it

Commonly not deductible, or restricted:

  • Capital improvements, which instead affect the eventual gain
  • Your own travel to the property, in many systems
  • Costs attributable to periods of personal use

That last item is the one that catches owners of holiday properties. Where you use the property yourself for part of the year, expenses generally have to be apportioned, and the personal-use portion is not deductible. Some systems also restrict relief further where personal use exceeds a threshold.

Keep the records the way the tax authority will want them

Two habits make the annual filing straightforward instead of painful.

Keep income and expenses for the property entirely separate from personal money, ideally in a dedicated account. Reconstructing which of your transactions related to the property is the single most time-consuming part of a foreign return.

Log personal-use dates as they happen. If apportionment applies, you will need those dates, and they are impossible to reconstruct credibly a year later.

From headline yield to what actually arrives

Every number below is invented to show how the deductions stack. They are not real rates, real costs or any market's real figures.

A property costs 500,000 and the brochure advertises a 6% gross yield: 30,000 a year. Work down the list.

Start with 30,000 of advertised rent. Assume 15% vacancy, because the brochure assumed none, and you are down to 25,500. Letting and management at 15% of collected rent takes 3,825, leaving 21,675. Routine maintenance and a sinking fund for the things that eventually break, say 4,000, leaves 17,675. Insurance, local property tax and service charges, say 3,500, leaves 14,175.

Now the tax layer. Assume the property's country taxes the net figure at 25%: 3,544, leaving 10,631. Assume your country of residence would have charged more on the same income and gives credit only for what you paid abroad, so a residual 5% is due at home: 709. That leaves 9,922. Finally the compliance cost — a foreign return, a local representative, perhaps a tax number — at 1,200, leaves 8,722.

The 6% headline is a 1.7% net yield on the purchase price, before any mortgage interest and before the acquisition costs are recovered.

Nothing in that sequence is pessimistic. It is simply the full list rather than the first line of it. Run your own version with real local figures before you buy on the strength of a projection.

Passive letting and short-term letting are different regimes

The distinction decides more than the tax rate, and owners routinely discover it after starting.

Long-term residential letting is usually treated as passive rental income. It generally means a local return, a defined list of deductible expenses, and possibly withholding at source for non-resident landlords.

Short-term and holiday letting is frequently treated as a business activity instead. That can change the tax computation, the reporting, and sometimes the social-charge position — and it brings a separate stack of non-tax obligations: municipal registration or licensing, a tourist tax you must collect and remit, insurance implications, and building or planning restrictions.

Many cities have added caps on nights, outright bans in defined zones, and registration schemes with real penalties. Platforms increasingly report host earnings to tax authorities automatically, so the working assumption should be that the income is visible whether or not you declare it.

The mistakes that cost the most

Not filing in the property's country. The obligation usually starts with the first rental payment, not with the first profit.

Not reporting the income at home because tax was already paid abroad. Relief is claimed, not automatic. Failing to report is a separate problem from failing to pay.

Not apportioning personal use. Where you use the property yourself, expenses generally have to be split, and the personal portion is not deductible. This catches holiday-home owners almost universally.

Mixing property money with personal money. Reconstructing which transactions related to the property is the single most time-consuming part of a foreign return, and it is entirely self-inflicted.

Assuming mortgage interest is deductible. It has been restricted or removed in several countries, and a projection built on it may not survive contact with the actual rules.

What to ask your adviser

Ask a tax adviser in the property's country and one where you are resident. This is the area where a single-country answer is most likely to be confidently wrong.

  • What must I register for here before the first letting, and by when?
  • Is there withholding at source, and is it final or a payment on account?
  • Exactly which expenses are deductible, and is mortgage interest among them?
  • How is personal use apportioned, and what records prove it?
  • Is short-term letting treated differently here, and does this property qualify for it legally?
  • What municipal registration, licensing or tourist-tax obligations apply?
  • How do I claim treaty relief at home, and what evidence of foreign tax is required?
  • What are the filing deadlines in both countries, and do they align?

The realistic yield

Before buying anything on the strength of a rental projection, build the number properly: gross rent, minus realistic vacancy, minus management, minus maintenance, minus the running costs in what a trophy property costs per year, minus local tax, minus any residual tax at home, minus the cost of the local filing itself.

That figure is frequently a fraction of the headline yield, and occasionally negative. It is better to know that before the purchase than to discover it during the first foreign tax return.

General information, not tax advice. Rental taxation, deductible expenses, withholding and short-term letting rules differ by country and municipality and change regularly, so no real rate appears above. Take local advice before letting a property.

Frequently asked questions

Where is income from immovable property taxed?

The general rule across most tax systems is that income from immovable property is taxable in the country where the property is located, regardless of where the owner lives. This obligation exists from the first rental payment, is not triggered by a profitability threshold, and does not wait until you make money.

How does double taxation relief work for foreign rental income?

Relief normally comes through a double taxation treaty, which typically gives the property country the primary right to tax and requires your residence country to give credit for foreign tax paid. This credit is claimed rather than automatic, requiring you to report the foreign income and provide evidence.

Which expenses are commonly deductible when letting a property?

Commonly deductible expenses include management and letting agency fees, insurance, local property taxes and service charges, repairs and maintenance distinct from improvements, and depreciation where provided. Mortgage interest is also commonly deductible, though several countries have restricted or removed it entirely from their systems.

What is the difference between passive and short-term letting?

Long-term residential letting is usually treated as passive rental income requiring a local return and defined deductions. Short-term and holiday letting is frequently treated as a business activity, changing the tax computation, reporting, social-charge position, and bringing non-tax obligations like municipal registration, licensing, tourist tax, and building restrictions.