Would you consider selling your UK property at a loss to finance your new life abroad? Many expats already have, but just how much of a financial sacrifice is sensible to enable you to move abroad?
If you’re one of the estimated 1.2 million Britons to own a home abroad, you could be in-line for a substantial tax rebate from the British government – but you will have to act very fast.
A lot has been written in the financial and taxation media about this tax break, but still it has not permeated the mainstream very well, and many Britons are unaware that their second home abroad could generate them a nice little windfall from the taxman.
As stated however, you only have a very tight widow of opportunity to get in and claim this tax bonus; you only have until the end of this month, (July 31st 2009), to make a claim to HMRC if you think you’re eligible for the tax rebate. Those who are potentially eligible are those who own an investment property in Europe that they let out as a holiday rental property, and because the amount of money you could stand to gain as a tax rebate from the British taxman is substantial in some cases if you are eligible, you need to read on to find out how to make your claim.
How Has This Situation Arisen?
This particular situation has come about because the UK suddenly realised it had tax rules in place that were not fair! Yes really!
They had tax rules in place that allowed a British taxpayer who had a holiday home in the UK to benefit from various tax advantages that enabled them to write off any trading losses from their second properties against their other income. Capital gains on their second home/business property could also be rolled over and even reduced according to the rules HMRC had in place for owners of holiday properties in the UK.
They did not allow for these benefits to exist for those Britons who had holiday homes in Europe however, a rule that clearly flouts European law – hence the reasons for this sudden change in their policy.
First the Bad News!
It’s not all good news however, and before we get on to who’s eligible for what and how to claim, we just need to tell you that once the government discovered that they were potentially breaking European law, they had their accountants work out how much tax revenue they could potentially lose if they let the rules carry on applying to those with holiday homes in the UK and Europe, and the amount was a staggeringly scary figure and so after April the 5th next year, no one with a holiday home in the UK or Europe will be able to benefit from these tax advantages.
And Now the Good News for Those With Holiday Homes in Europe
Because time is running out for this tax benefit, you need to determine whether you’re eligible for it, and the good news is, if you are you can claim the benefit retrospectively! I.e., you can write to HMRC and ask for your tax rebate and go back as far as the 2003/04 tax year. As stated though you have to act very fast to get your claim in before the 31st of July 2009.
Which Foreign Property Owners are Eligible
Do you own a second property in Europe?
Is it furnished?
Do you let it out as a holiday rental property?
Is it available for rental for at least 140 days per year?
Is it actually rented out for at least 70 days per year?
Is it rented for no more than 31 days to the same person?
If so, you may be able to claim a tax rebate.
What Can I Claim For?
If your expenses for maintaining your property abroad or the interest you pay on any mortgage is greater than the income you earn from letting out your holiday property this ‘loss’ can be offset against your income tax bill for the same year. Or your loss can actually be carried forward and offset against future letting profits according to the current rules that will become defunct sadly next tax year.
In terms of capital-gains tax, (CGT), if you sold your holiday home abroad and reinvested the money you generated from the sale within three years in another European based holiday letting property, (or certain other assets), costing the same as or more than you got for the property you sold, there is also the possibility that you can defer your payment of CGT until you dispose of the new assets.
Another CGT type benefit that existed for owners of British based holiday lets until last year and that you might be able to take advantage of retrospectively was that you actually paid less CGT when you sold a property used as a holiday rental property because it was classed as a business asset when it came to taper relief – for some this cut the capital-gains tax rate from 40% to 10% - if the asset in question had been owned for 10 or more years.
What Should You Do?
If at all possible go and see an accountant today, tomorrow but certainly this week. Take with you everything you have to prove that you meet the above criteria and ask them to help you with you claim. When you call to make the appointment explain what it is about and what the deadline is. Ideally they will be aware of this situation and be willing to help you. You need someone who can act fast, who knows their way around this particular tax rule by HMRC and who will get you your money back.
If you cannot find someone to assist you or you don’t want to pay an accountant, you will have to write your case up and present it to HMRC yourself. Call your local tax office for guidance, and just be aware that you will need watertight paperwork to prove you meet the above eligibility criteria.
Good luck and get moving. We’d love to hear from you if you manage to make a successful claim – write and tell us your story.
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