Reclaiming tax on your holiday home
It used to be a common piece of advice for UK residents thinking of buying holiday homes abroad, depending on the country they wanted to buy in, that they should set up a company and buy the holiday home through that. This was to get round the provisions of various overseas tax regimes which could potentially have deemed the new owners residents had they completed the purchase as individuals.
However, when the Income Tax (Earnings and Pensions) Act 2003 came into force, this advice became faulty. Effectively, the Act treats the holiday home as a benefit deriving from employment with the company, and taxes it with a living accommodation charge. This problem was recognised and dealt with in this year’s Budget, which allows people in this position to claim exemption from the living accommodation tax charge and also apply for refunds if they can show they have paid the charge in the past.
In order to qualify for the exemption and/or refunds, the following conditions must be met:
l Living accommodation outside the UK is provided by a company for a director or other officer of the company or a member of their family or household.
l The company is wholly owned by the person living in the house, or by them along with others.
l The company’s main or only asset is the interest in the property
l The company’s only activities are ones that are incidental to its ownership of that interest.
People wishing to claim refunds need to assemble a substantial amount of information proving that they have paid the tax, as indicated on HMRC’s website, and contact HMRC.