Following on from the announcement in the March Budget, HMRC have today released draft legislation exempting individuals from a benefit in kind charge on their own overseas properties. This has been welcomed by The Chartered Institute of Taxation (CIOT). John Whiting, Chairman of the CIOT’s Management of Taxes Sub-Committee, says: “It is good to see HMRC carrying through their commitment to remove this unfair tax charge on people buying properties abroad. This follows a number of papers submitted and meetings held, driven by the CIOT, and others, highlighting the issue and making the case for the exemption. There are some aspects to discuss during consultation but the draft is a good starting point."
The UK tax legislation understandably contains rules that give a benefit in kind tax charge in most circumstances when an employer provides accommodation for an employee. These rules can technically catch the situation where UK individuals buy an overseas property through their own local company – something that is common in France and Spain and also in newer destinations such as Bulgaria. This is because the individuals are deemed to be directors of their overseas company and so provided with accommodation by it, even though they are normally providing all the funding for the property out of their own resources.
John Whiting continues: “Buying a property abroad is increasingly common and purchases are often made through a local company. There is no tax avoidance involved: typically it can be for local regulatory reasons. Given that the UK buyers have bought the property out of their own resources it is an odd and unfair result if a UK tax charge arises.
“It is also good to see that the new rules will be retrospective to 2003. Whilst HMRC have generally not collected tax in these situations, pending resolution of the issue, anyone who has paid a benefit in kind tax charge will be able to claim their money back.”
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