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Overseas homes
HMRC have published draft legislation to amend ITEPA 2003, Ch 5 which will ensure that individuals who have bought or will buy a home abroad, will not face a benefit in kind tax charge for any private use of the property if purchased through a company. Under the current tax position, when accommodation is provided by an employer, unless covered by a specific exemption, a tax charge can arise where a property is provided by an employer to employees, or to a director, for their personal use.
Some UK resident individuals have set up or acquired companies to own a property abroad, generally for holiday use. Where they direct the company's affairs (whether through an agent or not) they can be within the scope of the living accommodation charge, although they may not have been aware of this or may have considered that no tax or National Insurance charge arose in these circumstances and have not, therefore, reported the matter to HMRC.
This proposed measure will remove that tax charge where certain qualifying conditions are satisfied. The exemption will only apply to the benefit in kind charge. It will apply where an overseas property is owned by a company that is owned by individuals and whose sole activity is holding that property for occupation and/or letting. It will have retrospective effect.
Comments on the draft legislation should be sent by 5 October 2007 to: P Harris, PAYE, SA & NIC Group, Product and Process, Employment Income Policy, 100 Parliament Street, London SW1A 2BQ, e-mail: pa.harris@hmrc.gsi.gov.uk.
These relaxations are welcome, says Baker Tilly, but the changes do not take overseas property out of the scope of UK taxes. The benefit in kind charge is removed, but its application is highly restricted in order to prevent the rule being exploited to avoid tax on benefits in kind, so that the company:
- must be owned by individuals directly;
- cannot have any other property or business;
- cannot receive any financial support from any other company.
The exemption only applies to the employee benefit rules and the existence of the company must be taken into account for all other tax purposes, in particular when assessing associated companies' smaller companies' corporation tax rates or quarterly instalment payments.
Baker Tilly's David Heaton says that it would be 'helpful if the legislation were extended to equally innocent circumstances, specifically where a property is held through an intermediate holding company, which exists solely to hold that property'. Lots of people owning properties in Spain and Portugal, for instance, use intermediate companies for local tax reasons, and not to avoid UK tax. These people will not benefit from the new rules, because they do not own the company.
www.hmrc.gov.uk
