New queries: 14 March 2019

Brick wall

Reclaiming withholding tax on Swiss company dividends.

Dividends received by UK residents from Swiss companies are subject to 35% withholding tax. Under Article 10 of the 2009 UK/Swiss double tax agreement, the Swiss Federal Tax Administration (SFTA) cannot impose a tax charge greater than 15% of the gross dividend if the beneficial owner is UK resident.

It is therefore left to the investor or his agent to reclaim the remaining 20% withholding tax from the SFTA using the prescribed claim form 86.

I have prepared such claims for three clients, had them stamped by HMRC and submitted them, together with supporting vouchers, to the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003 Berne, Switzerland but, despite several reminders, I have not had any form of response to claims submitted more than 14 months ago.

I understand from articles published on the internet, that there has been a long running dispute over refund claims made by institutional investors, but I can find nothing which says that this extends to individual investors.

Can readers shed any light on how to resolve this problem other than to avoid investing in Swiss companies, as at least one of my clients threatens to do?

Query 19,335– Landlocked.

Property portfolio

Double tax treaty on property profits in Eire.

My client is an Irish citizen who has been resident in the UK for the past 35 years. He owns a very large portfolio of residential investment properties in the UK, some of which are held by him personally. However, the majority of the properties are owned by a UK resident company of which he is the controlling shareholder.

My client is now proposing to acquire jointly with another UK citizen, who is currently resident in the Irish Republic, a portfolio of ten residential property investments located in the Irish republic for about €500,000.

To facilitate ownership of this property portfolio in Ireland, they are going to set up a new UK resident company that will own the Irish properties. The shares in the new UK resident company will be owned 50% by my client and his co-investor.

I have looked at Article 21 of the UK Irish double tax treaty which suggests that any taxation paid in the Irish Republic on profits arising there shall be allowed as a credit against any UK tax on the same profit income. This appears to allow an offset for the 20% income tax levied on non-resident landlords in the Irish Republic against what will be the UK corporation tax liability on the same profits.

Do readers have experience of this kind of situation and can they offer any further advice?

Query 19,336– Patrick.

Parking problem

Restriction on mortgage interest on residential garages.

My client has a substantial portfolio of residential properties that are rented out to tenants under assured shorthold tenancies. Many of these properties are subject to mortgages and, increasingly, tax relief on the interest is being restricted to the basic rate of tax.

The client has recently purchased a block of 20 garages for about £400,000 and 90% of the purchase price was financed by a mortgage.

I was advised of this at a recent meeting with the client who told me that ‘a mate down the pub’ advised him that the interest restriction – which is obviously a hot topic of conversation among the local property-owning classes – will not apply ‘unless I start letting people live in them rather than park their cars in them’.

This is the first time I’ve dealt with such a situation and while I can see a certain logic here, I am wondering whether this is correct. Originally, many years ago now, the garages were let to owners of the adjoining leasehold apartments who were entitled to rent a garage as part of the lease agreement for their apartment, but the freeholder has now sold them to my client. Some of the garages are still let to the residents, but others are let to other people who want somewhere to park their car or to use for storage.

Can Taxation readers advise whether tax relief on the mortgage interest must be restricted to the basic rate here?

Query 19,337– Joe.

Change of heart

Claiming VAT on new build.

I act for a builder who bought a plot of land in his daughter’s name a couple of years ago for £250,000. He was going to build a house on the plot to sell but is now having a rethink and his preferred choice is for him and his wife to transfer the land into their joint names and it would become their only or main residence. No building work has currently been undertaken.

My initial thought was that he could claim VAT on the building materials and professional fees through a DIY claim to HMRC. He has suggested setting up a company to buy the materials and do the building work as a partnership with his wife so that VAT is reclaimed as the project progresses, rather than when it is completed with a DIY claim.

The company would also employ the architects and surveyors and the charge from the company to him and his wife would be zero rated.

Do readers see any problems or pitfalls with his proposals?

Query 19,338– The Speculator.