Moving to Fuerteventura

If you are currently living in Fuerteventura, but are considering returning to the UK – then this year’s budget has some goodies in store for you.

Expats returning home and buying property in the UK will be able to benefit from some of the measures announced in the Budget.

The primary benefit is that anyone who is planning on buying a house worth less than £175,000 between now and December 31 will not have to pay any stamp duty, after Alistair Darling extended the exemption for properties up to this value until the end of the year. After this, the threshold for one per cent Stamp Duty will return to £125,000.

However, a key change to the tax treatment of holiday lets abroad will be of major benefit to any expats who have qualifying properties.

Until now, landlords with income from furnished holiday accommodation in the UK were able, for tax purposes, to treat that income as if they were trading, as long as they satisfied certain tests under the Furnished Holiday Lettings (FHL) rules. Foreign properties were not treated the same way.

But the Government is now not sure that this complies with European legislation, so until 2010, when the FHL rules will be repealed for all, anyone with a “qualifying” FHL in the European Economic Area (EEA) who is subject to UK tax on the income and capital gains from the property will get tax treatments available to traders.

Qualifying conditions must be met for these reliefs to apply and the property must be within an EEA country (see below).

Those expats who are no longer domiciled in the UK for tax purposes will also see some changes to the rules applied to them.

There will no longer be an obligation for non-domiciles in the UK who have overseas employment income of less than £10,000 a year and overseas interest of less than £100 to file a self-assessment return if the money is subject to a foreign tax. This takes effect from April 6, 2008.

Exemptions are also extended to allow property purchased out of foreign employment income and foreign chargeable gains as well as relevant foreign income with effect from April 6, 2008, said accountants Grant Thornton.

Chris Mills, director at Grant Thornton said: “These ‘minor’ amendments will in the main help to clarify the rules, but are an admission of the complexity created last year.

“Many of these amendments have been backdated to April 2008 when the original legislation became effective. This shows what happens when legislation is conceived, drafted and introduced too quickly.”

Offshore account holders who should have been paying UK tax on their income will also have a New Disclosure Opportunity from HMRC, which will allow them to disclose unpaid tax and settle their debts until 2010. It is also seeking powers to require financial institutions to divulge information about offshore account holders.

The Government is also “clarifying” the rules which provide relief from UK tax under double taxation agreements.

HMRC stated: “These changes, effective from April 22, prevent a deduction for foreign tax on the receipt of a Manufactured Overseas Dividend by a company, where the economic cost of the foreign tax has not been borne by the company. It will also ensure that banks always take a reasonable proportion of their funding costs into account in the calculation of double taxation relief.”

Those who persist in evading tax face the prospect of being “named and shamed” on the HMRC website. Those making genuine mistakes will not be targeted, but those making persistent attempts to avoid paying the right amount of tax will be.

The Chartered Institute of Taxation (CIOT) said it “supports the stamping out of tax evasion and will not be opposing this measure as long as it is targeted only at deliberate tax offences”.

It also supports setting a minimum amount, below which action would not be pursued.

Countries in the EEA

Austria, Liechtenstein, Belgium, Latvia (since May 2004), Bulgaria (since January 2007), Lithuania (since May 2004), Cyprus (since May 2004), Luxembourg, Czech Republic (since May 2004), Malta (since May 2004), Denmark, Netherlands, Estonia (since May 2004), Norway, Finland, Poland (since May 2004), France, Portugal, Germany, Romania (since January 2007), Greece, Slovakia (since May 2004), Hungary (since May 2004), Slovenia (since May 2004), Iceland, Spain, Ireland, Sweden, Italy, United Kingdom.

Source: HM Revenue & Customs

Qualifying conditions for FHL

Certain conditions must be met in order to qualify for the tax treatment provided under the Furnished Holiday Lettings rules:

•The property must be situated in the EEA.

•The business must be carried on commercially, and with a view to a profit.

• Availability: the property must be available for commercial letting as holiday accommodation to the public for at least 140 days during the relevant 12-month period.

• Letting: the property must be commercially let as holiday accommodation to members of the public for at least 70 days during the relevant 12-month period. A letting for a period of longer term occupation is not a letting as holiday accommodation for the purposes of the letting condition.

• Pattern of occupation: not more than 155 days must fall during periods of longer term occupation.

• A period of longer term occupation is a continuous period of more than 31 days during which the accommodation is let to the same person.

• For individuals with a continuing FHL business, the relevant 12-month period will be the tax year to 5 April.

Where the qualifying conditions are not met during the relevant period, the FHL rules do not apply for that tax year or accounting period. In that situation, the normal rules on overseas property income will apply for that tax year or accounting period.

For further details on the treatment of overseas property income see http://home.inrev.gov.uk/pimmanual/PIM4703.htm

Source: Telegraph Newspaper