The Impact of Brexit on UK Tax: Holiday Home Owners
To stay in or opt out. There is so much noise surrounding the June referendum, it’s hard to know who to listen to. But for the one million people who own holiday homes in Europe, how the move will affect their tax status is fundamental to the way they cast their vote.
The Effect on Capital Gains Tax
Under the current EU agreement, member countries are entitled to certain benefits when it comes to capital gains tax, and in some cases, the value of these is considerable. Take for example France, currently the most popular country for Britons to own holiday homes.
For all owners of furnished property, the French government currently imposes an ‘impôt sur les plus values’. This 19% levy is charged against any profit made from renting or selling a furnished holiday home, and can incur a surcharge of up to 6%.
However, for those that live outside the EU, there is a further ‘social charge’ applicable which equates to an additional 15.5% charge.
Many are suggesting that, even following a ‘yes’ vote for Brexit, Britain will still remain a member of the European Economic Area (EEA) and would therefore not be subject to this additional penalty. However, others insist individual agreements would be necessary to establish the British position. Otherwise this additional cost could become payable.
The Double Tax Treaty Debate
British holiday home owners also currently benefit from a Double Tax Treaty. This ensures specified taxes paid by UK holiday homeowners abroad can be offset against their UK tax bill.
For example, if you pay the 25% tax in France, this can be offset against your UK tax bill of, say, 28%, therefore making you liable for only a further 3% back home.
Thankfully, this agreement has been established on a country by country basis, and will not be immediately affected by the Brexit result. However, there is the potential for these terms to be renegotiated over time, with conditions for those outside the EU usually becoming less favourable.
The Impact of Brexit on Inheritance Tax
If you are using your holiday home as a nest egg to pass on to your children, the impact on inheritance tax must be considered.
In areas such as Spain or France, members of the EU are considered nationals when it comes to the level of inheritance tax levied on a property, and are therefore subject to much more preferential rates.
If Britain was no longer part of the EU, beneficiaries of the estate living in the UK might become liable to the increased level of inheritance tax associated with non-residents. Though the rate will depend on the status of the property, its value, and the relationship of the individuals involved, if no agreement is put into place following Brexit, the effect could be considerable.
The True Cost of Brexit
Though tax is a key issue when preparing for the Brexit vote, there are other considerations for UK holiday home owners. These will include gaining access to your home after the vote, the cost of travel, the value of the exchange rate and the impact on your long term investment.
If you have any queries over the implications of Brexit on the status of your Holiday Home or any operation in Europe, book a meeting with BHP today. We can help you prepare for any eventuality.