They paid €59,000 (around £40,000) for the flat. Their savings were used for a deposit of £5,000 and they took out a 20-year French mortgage for the rest. “In France we were able to get a fixed-rate loan for the whole of the mortgage term, which we preferred because we wanted to be sure the rent would cover the mortgage. We didn’t want to take any gambles, ” says Sébastien.

After spending about €10,000 decorating and improving the flat, they let it for €550 a month. “Finding tenants isn’t difficult in Paris because there is such a high demand from students for this type of accommodation,” Sébastien adds. Most of the rent goes towards the mortgage repayments and maintenance charges.

At the moment they are declaring the rental income in France and paying tax on it there, as well as declaring it on their British tax return. But they are wondering whether they could arrange their tax affairs more efficiently.

The flat is now worth about €100,000, but the couple have no plans to sell it, and are thinking of buying another one. They both live and work in London.

Justin Rix, an expatriate tax specialist with Grant Thornton, says: The attraction for many who buy a second property abroad is the income they can gain from letting it. Those resident or domiciled in the United Kingdom will then have to declare their foreign rental income on their UK tax return as well as abroad, so Sébastien and Lucia are doing the right thing.

The rates at which such property is taxed abroad vary from a low of 15 per cent in Bulgaria to 43 per cent for higher-rate taxpayers in Italy. The minimum tax rate that non-residents of France pay is 25 per cent.

Overseas tax will generally be applied to the rental income after deducting allowable expenses, for example, loan interest or agents’ fees, but in some countries the tax is on the gross rent.

It is important that any interest received on an overseas bank account is also properly disclosed. Ask for the “foreign income” pages when you fill in your tax return. This will allow you to claim for tax already deducted abroad. If your UK tax rate is higher than the overseas rate, further tax will be payable here.

Sébastien may be treated differently. As he is French, he may be considered to be non-UK-domiciled, even though he has been resident here for eight years. That would mean he would not be taxable in the UK on his share of the income, provided that he does not bring it back to this country.

As Lucia is UK-domiciled and resident, she is rightly paying UK tax on her share of the income. This will be the case for anyone who is UK domiciled and resident, whether they bring the income back or not.

You are normally considered domiciled in the country you regard as your permanent home. Temporary residence elsewhere, as in Sébastien’s case, does not alter domicile. You will normally be resident in the country where you live and work. But you can also be considered resident in the UK even if you live elsewhere, if you spend 183 days or more of the tax year here, or make visits to the UK that average 91 days or more a year for four consecutive tax years. www.grant-thornton.co.uk, 020-7383 5100

Bill Blevins, managing director of Blevins Franks, says: At present Sébastien and his wife are likely to find that their UK liability is the higher figure, so that they pay additional tax in the UK after accounting for French tax. So long as they are claiming all the allowable deductions they can in the UK, such as loan interest, insurance and repairs, they will minimise their total tax bill, although overall they may save more money (providing they are higher-rate taxpayers) if they pay a bit more tax in France by adopting the simple Micro-BIC approach. Instead of requiring a claim for actual expenses, this allows a flat 68 per cent deduction, so that only 32 per cent of the gross income is taxable.

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Specials

Times recommends

• Spanish property: why it's crunch time on the Costa del Sol
• Strong Euro and credit crunch impact overseas property buyers
• How to find the perfect Paris pied-a-terre