Clause 42
Finance Bill
6:15 pm
Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)
As the hon. Gentleman said, clause 42 will ensure that individuals who have used their own money to buy—or who will buy—a home abroad through a company will not face a benefit in kind tax charge for any private use of the property. Some UK-resident individuals have set up or acquired companies to own a property abroad, generally for holiday use. They will often have done so on the advice of their professional advisers, because of the specific laws in the country where the property is located. The hon. Gentleman mentioned Bulgaria. If those resident individuals direct the company’s affairs, they could be within the scope of the living accommodation benefit in kind tax charge, although they may not have been aware of that. They may have considered that no tax charge arose in such circumstances and have not therefore reported the matter to HM Revenue and Customs.
The measure before us will remove that benefit in kind tax charge if certain qualifying conditions are satisfied. It will apply where an overseas property is owned by a company that is owned by individuals and the sole activity of which is holding that property for occupation and/or letting. That will include ownership through foreign companies, such as French SCIs, as the hon. Member for South-West Hertfordshire mentioned. The measure will have retrospective effect. It is right that we should remove the tax charge that would otherwise arise in those circumstances. It is not fair that those who have decided to buy a property abroad, out of their own taxed income, should face a bill simply because they did so through a company.
The hon. Gentleman asked a number of specific questions. A general point is that eligibility will be considered against the rules that have been laid out—we expect those rules to be clear, but we may need to look at the specifics of a specific situation in order to be able to judge, so I do not want to give any misleading impression today. I can respond in some general ways.
The hon. Gentleman asked whether companies owned by a trust were covered by the exemption. The exemption will not apply where the property-holding companies are owned by a trust. The limited exemption is intended to remove the benefits tax charge in certain circumstances—where an individual had incurred the charge without realising it. The Government feel that the current qualifying criteria strike the right balance in that regard.
The hon. Gentleman asked about a situation in which management companies are nominees. The legislation covers the situation in which the company owning the property is held by another company, and that can include a management company if it is within that definition. He also mentioned a situation in which property is rented out. If the property is rented out and the owner makes a profit, it will be treated as any other rental income. Obviously, if an individual has difficulty with a specific situation, they should contact HMRC and look at how that situation relates to general policy. The hon. Gentleman mentioned timeshare. I have already explained what would happen if property was rented out and the same applies to timeshare, so there is no issue there.
If two friends buy a property, the exemption applies regardless of whether the property is owned by a single person or with someone else. The legislation applies where the accommodation is provided to a director or their spouse, and the fact that both spouses own shares in the company will not affect whether they are covered by the exemption. The legislation includes only a benefit that arises from the owner’s private use—running costs for the rental of the property would be allowable as usual. I think that I have answered all of the hon. Gentleman’s questions.