Foreign Holiday Home

Possible tax issues when using a foreign holiday home.

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I have a client who is UK resident and is purchasing a holiday home in France, which will require considerable sums to improve. Simplicity of tax affairs is the overriding consideration for the client. The holiday home will be owned in his own name and will be rented out during summers to "wash its face".

Calculating tax individually in France on the basis of how the French tax such matters, then calculating it again in the UK under our basis, and applying relevant foreign tax credits is administratively difficult and may lead to cases of double taxation where an expense is allowable in France but not in the UK. Instead, he would like to carry out the property rental business via a French limited company which would file local accounts and pay local taxes rather simply, then receive a dividend which is simple on the UK end.

I can't identify anything that immediately scuppers this idea, but similarly it's hard to piece the jigsaw together.

What form of agreement is needed between the individual and the company in respect of the company's ability to exploit the property? Will a belt and braces lease be required? If it was a UK property, would such an arrangement attract stamp duty?

Assuming it is ok from the French end, if the property increases in value as a result of improvements paid for by the company, are there any UK issues arising? He may pay more CGT on eventual sale from this but he's ok with that. Could the value of improvments be considered consideration from a lease and taxable as income? He's not looking to have the company pay the mortgage but it would pay other running expenses of the property.

In short, he wants:

  • Simplicity from UK and French perspectives
  • Not to deduct mortgage expenses from rental income
  • Pay for the depreciation of improvements from rental income - these are the big expenses in the whole affair so would be good to do before taxed in his hands

Many thanks.

Replies (4)

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the sea otter
By memyself-eye
13th Apr 2020 18:35

Maybe he should consultant an accountant?
(one conversant with such issues)

I would if I wanted to 'wash my face'.....

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By Richard Grant
13th Apr 2020 18:53

Setting up a French SARL etc is walking into a minefield just for a bit of rental income. It seems to be complicating what should be a relatively simple process. Obviously it depends on the level of income but keep it simple.

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paddle steamer
By DJKL
14th Apr 2020 10:00

Is he intending to rent the property personally from the company when he wants to use it?

What happens in France re TVA on the rentals, if anything?

I think a French accountant/solicitor would be very advisable.

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By clarkejoe
14th Apr 2020 10:35

The following is the position from the french perspective:

The supply of short term rentals is exempt from TVA, unless certain conditions hold true in which case it is charged at 10%.

The agreement between the owner and the company would be a non-exclusive license to occupy with the rights for the company to make improvement works for the furtherance of its business. As such, the owner wouldn't need to rent from the company when present. The model is similar to the hotel "PropCo/OpCo" model, except with the owner occupying the position of the PropCo.

If the improvement capital works forms a constructive dividend, paying income tax on this is acceptable.

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