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STEP Welcomes New UK Tax Rules For Foreign Homebuyers

by Robert Lee, Tax-News.com, London

04 April 2007


The Society of Trust and Estate Practitioners (STEP) has welcomed new rules that will mean that British citizens who buy a home abroad will not face an income tax charge if they purchase the home using a company as the owner.

According to STEP, many British holiday home owners have set up or acquired companies so that they were not caught by foreign ‘forced heirship’ rules. Where the homeowner directs the company’s affairs it was possible that the homeowner would fall within the scope of a benefit in kind tax charge. The new rule will mean that they should now not be affected.

STEP noted that many people were not aware they were potentially caught by the charge, which was not designed to catch taxpayers buying overseas holiday homes.

Commenting, John Riches, Deputy Chairman of the Society of Trust and Estate Practitioners (STEP), said: "Many people set up such companies to get round problems under foreign law called ‘forced heirship’ rules. In Britain you can pretty much leave your home to who you want in your will, as long as you provide for any dependants such as your children, but this is different on the continent. In countries such as France and Spain, there are compulsory rules requiring individuals owning property to leave a fixed percentage of the property to specified heirs.

Riches added: "Under the new rules you will be free to set up a company to own your holiday home and will not be liable for the ‘benefit in kind charge’ if you do so. This is very good news for the thousands upon thousands who have bought a place in the sun because they will be free to own the property via a company without UK income tax risk."

A recent research report by the Institute of Public Policy Research said that there are 5.5 million expats abroad with many settling in countries like France or Spain which have forced heirship rules.

Draft legislation will be published for consultation later this year for inclusion in the Finance Bill 2008. HM Revenue & Customs have stated that they will not seek to tax anyone in the intervening period where the following 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.


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