The Right Sort of Retrospective Legislation! Tax and Overseas Properties

The Right Sort of Retrospective Legislation! Tax and Overseas Properties
The Government has often been criticised for passing retrospective legislation – for example the income tax charge on “previously owned assets” in the 2004 Finance Act, which affects arrangements made as long ago as 1986 and imposes an income tax charge on those who have made arrangements to transfer properties to the next generation.


This year’s Finance Act, however, contains the kind of retrospective legislation I like – the kind that gets you a tax repayment!


For many years, people buying a property abroad have been advised to do so through a limited company (or the local equivalent in the country concerned) instead of buying the property in their own names.


This made sense in the overseas jurisdiction, because in some cases foreigners are not allowed to own real estate directly, and in others the tax and legal position is much simpler if a company is involved.


Like much tax planning, however, what solved one set of problems had the unfortunate result of creating another set of problems in another jurisdiction – the UK.


UK tax legislation charges tax on benefits in kind provided to directors and employees, and in a case where an overseas company was used as the vehicle to own an overseas property, some over-zealous tax inspectors were in the habit of arguing that the result of this arrangement was a benefit in kind taxable on the UK citizen who owned the company.


The tax legislation imposes a charge where a company provides a director with “living accommodation”, and the amount of tax can be quite heavy, especially on properties costing over £75,000.


This was clearly unfair, given that the only reason for the company owning the property in the first place was the need to comply with the law in the country concerned, and it was typically the director/owner of the company who had put it in funds to buy the property in the first place.


Unfortunately, the way the law was drafted left very little room for argument, and so large tax bills were often the consequence of such arrangements.


The 2008 Finance Act includes an amendment to the legislation on benefits in kind which says that there is no taxable benefit on accommodation provided by a company where all the following conditions are met:


The property concerned is not in the UK
The shares in the company are all owned by individuals, and not by another company or a partnership
The company has no other significant assets apart from the property
All the company does is provide the use of the property – whether free to the owners of the company, or by way of letting it commercially

Interestingly, the Press Release announcing the opportunity to claim a repayment says: “The living accommodation charge was not intended to apply to these circumstances”, and as a result this tax exemption is to be treated as “always having had effect”, so anyone who has been charged to income tax in the past on the benefit of living accommodation in the circumstances set out above can now claim repayment of that tax.


Because the law now says that this was never a taxable benefit, it appears that the normal six year time limit for claims will not apply to this situation, and that you should be able to get interest on the tax repayment.


HMRC seem to expect a lot of claims, as they have set up a contact address in Manchester to deal with them:


Michael Robinson
c/o Debbie Green
HM Revenue & Customs
CPPT Directors Office
5th Floor
Trinity Bridge House
2 Dearmans Place
M3 5DT.


If you think you qualify for a repayment, I should get your claim in without delay as the chances are HMRC will be snowed under with claims and you may find yourself at the back of a long queue!


James Bailey