Company Owned Houses Abroad
By David Collier CA CTA
Many UK residents own property abroad, often through companies set up for this purpose. The properties are often bought for holiday use. The use of a company to hold the property is usually motivated by inheritance, tax or legal rules in the relevant country. The companies are usually also formed abroad.
There are tax rules concerning the provision by companies of living accommodation. These rules apply to directors and employees. These tax rules would generally apply to give a benefit in kind amount chargeable to UK income tax on the company owner.
Many owners of holiday properties were not aware of the tax rules. Further many of those who were aware of the rules tried to avoid their impact by avoiding being directors of the company. However the tax rules apply also to shadow directors, being individuals who direct the affairs of a company. This could lead to arguments with HM Revenue and Customs.
The tax rules were also felt to give a perverse result, as not being comparable to the usual situation of benefits to employees. The result of this situation was therefore neither satisfactory to taxpayers nor to HMRC.
Proposed change
In a Budget Notice issued in March 2007, HMRC announced a proposal to remove this tax charge. The details of the change will be included in the 2008 Finance Act, following consultation about its exact terms.
Unusually, the tax change will have retrospective effect. Further HMRC have indicated that pending the legislative change they will not seek to charge income tax where the following four conditions are met:-
- The property is owned by a company owned by individuals;
- The company’s only activities are ones that are incidental to its ownership of the property;
- The property is the company’s only or main asset; and
- The property is not funded directly or indirectly by a connected company.
Some points to note are:-
- The four conditions above may be expected to be the key conditions in the eventual legislation. They will be met by the vast majority of companies used for this purpose.
- Individuals who have previously been taxed on a benefit in kind should seek advice on what action can or should be taken in respect of past tax liabilities.
- The proposals do not affect other tax liabilities that may arise in connection with the company or its property. These could include tax on rental income or gains on a sale of the company or its property.
David Collier is tax partner at Chiene & Tait, one of Edinburgh's leading accountancy firms.
Website: www.chiene.co.uk
More information on this subject is contained in the guide Using a Property Company to Save Tax
