A Christmas Story For European Property Owners
All good Christmas tales have a moral – this case study from Hedge Tax Mitigation is not so much the ghost of the Christmas past as the ghost of not understanding Capital Allowances and tax! Anyone with a European property should read this to make sure they understand the full tax rebates possible. A further case study on a part holiday-home part rental-property in the Costa del Sol is available from Hedge Tax Mitigation.
Having fallen in love with the image created by Peter Mayle in his book ‘A Year in Provence’, Wendy and David thought that this was exactly the new life they wanted to share. After months of searching they found their ideal home in a small village in Provence.
They both left their jobs as teachers and David planned to do some exam marking remotely. Sensibly, they had decided not to ‘shut up shop’, but rent out their home back in Sevenoaks. They used Currency Solutions to ensure they got the best exchange rate for the purchase of the French property and by formulating a strategy to manage the regular payments they saved over £3,500 on the exchange rate compared to the bank. Unfortunately their dream did not turn into reality as they missed the routine of working and struggled to learn the language which meant it was difficult to settle in to the French village. They made the brave decision to return home.
Fortunately they had bought in a location popular with French holidaymakers, and local letting agents confirmed that they would be able to let their property without too much difficulty. So in Autumn 2007 they came back. When Hedge Tax Mitigation met them they were disarmed and of course counting the financial cost of setting up their house in France. Whilst the rental income made a significant difference, it by no means covered all their costs. Fortunately Wendy was able to get another teaching post and David secured fairly regular supply work which allows them to cover the bills.
Hedge Tax Mitigation provided them with the following financial solutions
Firstly they were able to prove that they had been running the property as a lettings business since 2007, which meant all of the costs they had incurred from that date (after deducting rental income) could be counted as losses and offset against the income they received from teaching. This resulted in a significant tax rebate for them.
In addition to that, Hedge Tax also identified Capital Allowances of almost £100,000 (approximately 25% of the purchase price of the property), which enabled them to claim a further rebate from HMRC, as well as ring fencing their income from income tax for the next two years.
Fortunately due to the flexibility of their jobs they now spend their summer holidays in France. The property is holding value and so will afford them a comfortable pension in the future.
Lessons to be learned
The expert advice offered made it possible to reclaim tax rebates that were theirs as a statutory right. The fact that their rental business had been losing money was not a reason to not report everything to HMRC – this actually enabled them to benefit from available tax breaks.
Many property owners make the mistake of believing that, if their property is running at a loss, they do not need to report it to the Inland Revenue. The lesson is they should, and it is more profitable for them to do so.
For more information or to find out about the other case study contact John at email@example.com