Differing rules will apply in differing jurisdictions, but often one of two main methods will usually apply:
- Tax Depreciation will be allowed as a deduction from taxable profits. This depreciation will be calculated using the relevant accounting standards as amended by guidance issued by the appropriate tax authority. This approach is used by the majority of countries throughout the European Economic Area and the USA.
- Depreciation will not be an allowable deduction for tax purposes, but relief for capital investment is provided through a parallel system of capital allowances (or similar). This approach is used by the UK, Ireland, Australia and many African countries.
UK Inbound Investors
Whilst foreign investors will pay UK income or corporate tax on rental income received for UK properties importantly, it is likely that a charge to tax in the country of residence will also apply. Therefore, non-resident taxpayers with UK property may be required to calculate and value the relevant tax relief and allowances under both tax jurisdictions.