Mexico-UK tax treaty: rent and gains on Mexican property

A note on the dates of the amending protocol

The GOV.UK consolidated text says the convention was “signed 2 June 1994” and “amended by Protocol signed on 23 April 2009”, while the title of the page refers to the “2011 Protocol”. The page does not explain the difference, so the exact amending instrument is not settled here. The consolidated text is the one HMRC publishes as in force, and the articles discussed below are quoted from it.

Article 6: income from immovable property

The consolidated article says in substance:

• Paragraph 1. Income that a resident of one State derives from immovable property (including income from agriculture or forestry) situated in the other State may be taxed in that other State.
• Paragraph 2. “Immovable property” has the meaning it has under the law of the State where the property is situated. It always includes accessory property, livestock and equipment used in agriculture and forestry, rights to which the general law on landed property applies, usufruct, and rights to payments for working mineral deposits and natural resources. Ships, boats and aircraft are not immovable property.
• Paragraph 3. Paragraph 1 applies to income from “the direct use, letting, or use in any other form” of immovable property.
• Paragraph 4. Paragraphs 1 and 3 also apply to the immovable property income of an enterprise and to income from property used for independent personal services.

For a UK resident who lets a Mexican home, the effect is that Mexico keeps the right to tax the rent. The treaty articles read do not give a lower rate or a method to deduct costs.

Article 13: capital gains

The consolidated article says in substance:

• Paragraph 1. Gains a resident of one State derives from alienating immovable property referred to in article 6 and situated in the other State may be taxed in that other State.
• Paragraph 2. The same applies to gains from alienating (a) shares that derive their value, or the greater part of it, directly or indirectly from immovable property in the other State, and (b) an interest in a partnership or under a trust whose assets consist principally of such immovable property or of such shares.
• Paragraph 6. Gains from alienating stock or other rights in the capital of a company resident in the other State may be taxed there if the seller held at least 25 per cent of its capital during the preceding twelve months.
• Paragraph 7. Gains from the alienation of other property are taxable only in the State where the seller is resident.

Paragraph 2(b) mentions trusts whose assets consist principally of immovable property. A Mexican fideicomiso is a trust in the sense of Mexican law (see how the trust works); whether the paragraph covers it is a question for the tax authorities, because the article text does not discuss it.

How this meets Mexican law

See selling as a non-resident and rental income tax for non-residents. By comparison, only the US convention contains an election to compute rent on a net basis; see the US guide. The Canadian text puts the alienation of property in article 6 as well; see the Canada guide.

What this page does not do

• It does not say what UK tax applies to the same rent or gain, or whether any credit is available.
• It does not interpret the 2011 or 2009 protocol beyond the consolidated text.
• It does not give a worked tax figure: no example is used because an illustration would need a price and a gain that the sources do not provide.

Which professional to consult

A Mexican tax accountant (contador público) can file the returns and the withholding certificates. A notary (notary) computes the Mexican tax on a sale at the deed. A real estate lawyer (real estate lawyer) reads the trust or lease. Check each professional’s registration yourself.