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PKF warns on holiday homes from hell
With many people’s thoughts turning to their time in the sun, PKF has warned of several obstacles to owning that dream holiday home.
Many countries that are popular with UK holiday makers, such as Spain and Portugal, impose some form of inheritance tax on the transfer of land and property on the owner’s death. Other holiday destinations such as France also have restrictive land ownership succession rules.
As a result, many buyers will be urged to consider owning the property through a company to avoid local tax and legal problems. However, being a director of a company (or simply controlling the company in the manner of a director) and using the company’s assets may give rise to a taxable benefit in kind in the UK, even if the company is registered overseas, PKF has advised.
Peter Penneycard, director of tax at PKF said, “You could easily end up paying UK tax for using your own holiday home!”
The Inland Revenue has started to take a keener interest in such arrangements following the Regina v Allen case, involving a ‘shadow’ or deemed director of an offshore company, which cast doubt on the tax efficiency of widely used property-owning vehicles.
Penneycard added: “Many UK holiday makers get carried away by the comparatively cheap price of housing and idyllic surroundings when abroad. It can be a good investment but there are many pitfalls. If you’re still serious about buying even after your sun tan has faded, make sure you consult a professional to review your tax position before you sign anything. Buying the property through a trust instead of a company can get around this problem, but it is not effective in all countries. Or you could always avoid all the hassle and go to a hotel!”
Those who are looking to buy a holiday home in the UK also face increasing costs. In addition to rising property prices, local authorities may be allowed to charge full council tax rates on second homes under plans revealed by the Government earlier this month. At present, second homes and empty properties are entitled to a 50% discount on the levy but the Local Government Bill will allow councils to abolish this and charge the full rate, making second home ownership an expensive business.
This article was supplied by TravelMole’s sister site, accountingweb.co.uk
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