By: BILL BLEVINS
Financial Correspondent, Blevins Franks
financial@portugalresident.com
THE CHARTERED Institute of Taxation (CIOT) has welcomed UK draft legislation exempting individuals from a benefit in kind charge on their own overseas properties.
“It is good to see HMRC (HM Revenue and Customs) carrying through their commitment to remove this unfair tax charge on people buying properties abroad,” said John Whiting, Chairman of the CIOT’s Management of Taxes Sub-Committee.
The draft legislation follows on from an announcement in the March Budget.
UK tax legislation contains rules that give a benefit in kind tax charge in most circumstances when an employer provides accommodation for an employee, but these rules can technically catch UK individuals who buy an overseas property through their own local company. Something that is common in France and Spain, and also in newer destinations such as Bulgaria. This is because the individuals are deemed to be directors of their overseas company and so provided with accommodation by it, even though they are normally providing all the funding for the property out of their own resources.
Whiting continued: “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.”
The new rules will be retrospective to 2003.
Non-domicile tax status
A cross-party committee of MPs is, according to one member, “certain” to look into the issue of wealthy foreigners claiming non-domicile tax status in the UK, but the government appears to remain reluctant to change the rules for fear of being seen as hostile towards wealthy investors.
The treasury revealed how much tax was paid by the 110,000 individuals claiming non-domicile tax status in the UK. According to Jane Kennedy, a treasury minister, this group earned 9.8 billion pounds sterling and paid three billion pounds sterling in tax in 2004/5. She was unable to tell the Commons how much tax might be being lost to the treasury as a result of the scheme, which excuses claimants from UK income tax on foreign earnings.
While the treasury has been reviewing non-domicile tax status since 2002, it has yet to propose any changes to the system, and Kennedy has reportedly indicated that the government would be reluctant to alter the status quo because this could harm the status of London as Europe’s pre-eminent financial centre.
Meanwhile, UK nationals who claim non-domicile status to avoid being caught in the Offshore Disclosure Facility have little chance of success. It has been suggested that applications for non-domicle status has surged as under the facility as people try to avoid paying tax on foreign income including interest earned in offshore bank accounts.
An article in AccountancyAge states that those claiming non-domicile status in order to avoid the offshore bank account crackdown face an uphill struggle. An HMRC spokesman said: “Where we suddenly see non-domiciled applications from people in their forties, fifties and sixties who have never claimed to be non-doms before, we are going to take a very hard look at them and challenge applications in the civil courts if we have to.”
Immigration amnesty
The Institute for Public Policy Research (IPPR) is calling for Home Secretary Jacqui Smith to back a plan to allow almost half a million people who are currently living illegally in the UK to stay and pay taxes.
The IPPR’s research shows that regularising the people who currently live and work illegally in the UK could net the treasury around one billion pounds sterling per year, compared to the 4.7 billion pounds sterling that it would cost to deport them forcibly.
“Illegal immigration is a deeply difficult subject for politicians to tackle,” said IPPR Head of Migration and Equalities Dr Danny Sriskandarajah.
“The simple truth is that we are not going to deport hundreds of thousands of people from the UK. Our economy would shrink and we would notice it straightaway in uncleaned offices, dirty streets and unstaffed pubs and clubs. So we have a choice: make people live in the shadows, exploited and fearful for the future; or bring them into the mainstream, to pay taxes and live an honest life.”
Spain’s latest regularisation programme resulted in around 700,000 workers being allowed to stay, increasing Spanish tax revenue by an estimated 750 million euros per year.
And finally…
The UK taxman, apparently, has a heart after all. HMRC has offered to waive penalties and delay the imminent self-assessment deadline for people affected by flooding.
According to the Daily Telegraph, a tax spokesman said: “There will be lots of poor people out there whose lives have been blighted by the terrible flooding and who face having to pay their self-assessment tax bills by July 31. We will be very considerate and sympathetic to individual customers whose financial situations have been turned upside down because of the floods and will treat every case on its merits, so customers who need help or advice should contact us as soon as possible.”
Whether or not this applies to people who cannot access their homes, bank accounts, cheque books, self-assessment documentation etc remains to be seen.
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