10/12/2002

Holiday home owners may face tax hit warns PwC

A recent House of Lords ruling could mean that many owners of overseas holiday homes will face an unexpected tax hit, according to accountancy giant PricewaterhouseCoopers (PwC).

The Lords ruling is designed to close a loophole where UK residents, who own property abroad, often buy their home through an offshore company. This can minimise their tax bill and can avoid difficulties in countries like France, Spain and Portugal, which have complex inheritance tax rules.

But for businesses in the UK, the House of Lords decision means that owning a foreign property or holiday home may now be viewed a business perk worthy of tax assessment – similar to a company car.

Commenting on the ruling, PwC Belfast tax partner Geoffrey Ruddock said: “This is a radical change to the status quo and will impact on many people who have purchased, or are contemplating, the purchase of a holiday home abroad.

"This ruling means that UK residents who use a company to acquire and manage overseas property could face UK income tax of up to 40% on the market rental value of the property.”

More than 500,000 UK residents have holiday homes outside the UK, with Spain and France the most popular destinations. According to the Abbey National, mortgage applications for overseas properties have jumped 64% since September 2001.

Mr Ruddock says that anyone thinking about, or in the process of, buying a property abroad should avoid buying it through a company if at all possible.

For those who already purchased properties abroad using a company structure, he advised: “If you already own a property through a company, and where the value of that property hasn’t increased too much in value – investigate if it is possible to get out of the company ownership structure without too big a tax hit.

“However, if the value of your property has increased substantially you may face a potentially large corporate or capital gains tax bill here or abroad if you decide to take the property out of the company.

“Anyone who finds themselves in this position should seek professional advice to help minimise the impact of this tax ruling."

(MB)

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