The Chancellor, George Osborne, announced significant changes to inheritance tax (‘IHT’) in his Budget on 8th July 2015. Amongst the announcements was a change to the IHT rules relating to UK residential property held indirectly by a non-UK domiciled individual (‘Non-Dom’) or by excluded property trusts.
The proposals will apply to Non-Doms, whether UK or non-UK resident, and trustees of excluded property trusts, where UK residential property is owned beneficially through a foreign company or other structure and is classified as ‘excluded property’ for IHT purposes.
Currently, neither a Non-Dom nor the trustees of an excluded property trust will be subject to IHT on the value of UK assets owned by a foreign company or on the value of the shares in a foreign company which owns UK assets.
New measures have been introduced in recent years to discourage the ownership of UK residential property by foreign companies, most notably the Annual Tax on Enveloped Dwellings (‘ATED’), SDLT changes and new CGT rules; but HMRC have noted that many Non-Doms are content to suffer the disadvantages of those rules in order still to receive IHT benefits.
The government now intends to amend the IHT ‘excluded property’ rules so that trusts or individuals owning UK residential property through an offshore company, partnership or other vehicle will pay IHT on the value of such UK property in the same way as UK domiciled individuals, thus eroding further the benefits of such structures. The government does not intend to change the existing excluded property rules in relation to assets other than UK residential property, or for non-UK assets.
The government will publish a consultation document on the proposed changes shortly with a view, ultimately, to draft legislation forming part of the 2017 Finance Bill.
For more information, please contact the partner having responsibility for your affairs, or any partner in the Private Client Department here.