UK to scrap “petty tax” on Spanish homes
By Alison Farmer, 19 Jul 2007
The UK’s “Petty Tax” on overseas property owners is likely to be scrapped and the changes made retrospective for the last four years with repayments for tax collected.
The tax was claimed where owners used their holiday homes in Spain and other sunbelt countries because the UK taxman saw this as “benefit in kind” and linked it to annual taxable “income”.
Now draft legislation arising from the March Budget statement, says where the property is owned by a UK tax payer through a local company, the owner will be exempt from the benefit in kind taxation.
The move has been welcomed by The Chartered Institute of Taxation (CIOT), whose spokesman, John Whiting, said: “It is good to see HMRC carrying through their commitment to remove this unfair tax charge on people buying properties abroad. There are some aspects to discuss during consultation but the draft is a good starting point."
CIOT has been pressing for the scrapping of this benefit in kind tax. Added John Whiting: “Buying a property abroad is increasingly common and purchases are often made through a local company. There is no tax avoidance involved: typically it can be for local regulatory reasons. Given that the UK buyers have bought the property out of their own resources it is an odd and unfair result if a UK tax charge arises.”
More people are buying a property in Spain using co-ownership and an innovative purchase plan called Libertad (Spanish for Freedom) provided by specialists, PropertyInSpain.Net and leading Spanish banks. The Libertad is based on a Spanish SL (Limited) company that buys the property with its British shareholders – family members and/or friends - providing the funding.
Said spokesman, Kevin Barnett: “ This has been a petty tax for years and scrapping it will encourage more Libertad buyers who already enjoy big tax breaks in Spain when buying in this way. As all due taxes are paid in Spain and offset against UK taxation, this extra exemption simplifies the whole process. It could save Libertad buyers £1,000s over the ownership period.”
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