What Tax Day 2021 Means For Expats

Lisa Smith, BA (Hons), CeFA
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Expats with second homes in the UK are likely to see their tax bills rise with government plans to close a lucrative tax loophole that many have exploited to save council tax.

A new law will only allow expats with genuine holiday letting businesses profit from cheap business rates.

Instead, expats with second homes in England will have to pay more expensive council tax with regional governments in Scotland and Wales expected to follow suit.

Most expats claim Small Business Rate Relief that means they currently pay no business rates if they declare their properties are holiday lets instead of second homes.

The loophole applies to more than 60,000 second homes – with 96% of owners paying no rates.

New Rules Close Second Home Tax Loophole

Expats who make no effort to rent their properties to tourists will be hit by the new law.

When the measure comes into force, expats will have to prove they have let their properties for at least 140 days in a tax year.

Second homes have long benefited from more advantageous tax treatment than buy-to-lets, but the new rules mark a sea change in government thinking.

Councils in popular holiday areas like Cornwall and the Lake district have long complained second home owners gain from their services without contributing to their coffers.

A consultation on business rates for holiday lets revealed many second home owners only allowed holidaymakers to book in off-peak periods or charged unrealistic prices to discourage visitors so they could claim rate relief to save money.

“The new criteria will ensure that owners of properties that are not genuine businesses are not able to reduce their tax liability by declaring that a property is available for let but make little or no realistic effort to actually let it out,” said the Treasury.

More details and a timetable for the new law will be published by the Ministry of Housing.

Offshore Tax Rules Tightened

The tightening of holiday home tax reliefs was one of 30 policy documents and consultations published by the Treasury on Tax Day 2021.

This was the first of a scheduled annual Tax Days aimed at separating Budget announcements from tax policy proposals.

Other policies of interest to expats include a consultation on how to help UK taxpayers get their offshore taxes right.

The consultation is open until June 15 and explains HM Revenue & Customs will divert more resources in to cracking down on offshore tax avoidance.

Part of the effort is aimed at closing offshore tax havens to UK taxpayers while stamping out errors in tax returns.

HMRC Tipped Off About Millions Of Offshore Accounts 

The document reveals HMRC has received data about 7.6 million offshore accounts from data sharing agreements – mainly the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) – which have led to the recovery of £3.3 billion in unpaid taxes.

One suggestion to improve offshore tax compliance is to make agents responsible for reporting financial information about their clients to HMRC, while another discusses how to raise awareness of UK tax obligations with expats and other non-residents.

Inheritance Tax paperwork becomes simpler with 200,000 families lifted out of the form-filling process if their estates are granted probate or other confirmation but pay no IHT.

This measure was floated in the media before Tax Day along with several other policies that failed to materialise in the flood of documents.

Concerns over changes to capital gains tax and pension tax breaks seem not to have made the cut with Chancellor Rishi Sunak.

Chancellor’s 10-Year Tax Plan

But Tax Day does disclose the government’s 10-year blueprint to streamline the UK tax reporting system.

The major changes involved would be to add self-assessment and corporation tax to the Making Tax Digital program.

Part of the plan means scrapping annual returns in favour of rolling tax reporting and payments throughout the year via an online platform.

Other documents show HMRC plans to tighten up oversight on tax professionals.

Tax advisers will have to take compulsory professional indemnity cover so taxpayers can reclaim their money if advice goes wrong.

And professionals selling off-the-peg tax avoidance scheme will face sanctions that include seizing or freezing assets, closing advice companies and disqualifying directors so they cannot take part in managing companies.

Crack Down On Tax Avoidance Advice

Action is also on the way against tax advisers pushing disguised remuneration schemes which underreport earnings by cloaking them as loans instead of salaries.

Many of the other policy announcements concerned larger businesses, including a far-reaching review of business rates; how aviation passenger duty impacts flights within the UK and tweaking VAT rules.

Financial Secretary to the Treasury Jesse Norman said: “We are making these announcements to increase the transparency, discipline and accessibility of tax policymaking.

“These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things.

“By grouping them together, we want to give Members of Parliament, tax professionals and other stakeholders a better opportunity to scrutinise them.”

Tax Day 2021 Welcomed By Tax Professionals

Tax professionals welcomed the Tax Day initiative.

John Cullinane, Director of Public Policy for the Chartered Institute of Taxation, said: “We welcome the establishment of a ‘tax consultation day’ in addition to the Budget as an opportunity for more focused scrutiny of tax measures and for broadening the public conversation about tax.

“Early and open consultation, seeking views and ideas as widely as possible at the earliest possible stage of policy development, leads to better tax law, which is in the interests of both taxpayers and their advisers, and the tax authority. We look forward to responding to the consultations launched today and encourage others to do likewise.”

Find out more: A full list of policy statements and consultations from Tax Day 2021

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