New UK Inheritance Tax (Overseas Landlords) – Update!
WHAT ARE THE CHANGES TO INHERITANCE TAX AFFECTING OVERSEAS LANDLORDS?
In his Summer Budget, George Osbourne announced that previously exempt overseas individuals/entities will become accountable to UK Inheritance Tax for property located within the UK. The changes will enable shares in a company holding UK residential property to be ‘looked through’ so that IHT will apply as though the property was held by an individual.
The changes will affect all UK residential property of any value whether it is owner occupied or let.
Some examples include:
- Where a non-dom gifts the shares in a non-UK company which holds UK residential property to a trust an immediate charge to inheritance tax will arise;
- A charge to inheritance tax will arise on the 10 year anniversary of a trust set up by a non-dom which holds UK residential property through a non-UK company;
- A charge to inheritance tax will arise on the death of a non-dom who owns shares in a non-UK company which holds UK residential property;
- Where a non-dom gifts the shares in a non-UK company which holds UK residential property to another individual no charge to inheritance tax will arise if the non-dom survives the gift by seven years.
WHO WILL BE AFFECTED?
All UK residential property held by a non-domiciled person, whether directly or indirectly, including UK residential property held by offshore companies, offshore trusts and company structures and non-UK partnerships will be subject to UK inheritance tax.
WHEN WILL THESE CHANGES COME INTO EFFECT?
The chancellor has confirmed that new changes will come into effect as of April 2017 which will allow time for non-doms to consider their restructure their affairs and allow the government time for consultation on the costs of extracting properties from offshore structures.
UK ASSETS EXEMPT FROM INHERITANCE TAX
The estate doesn’t have to pay Inheritance Tax on some assets in the UK if the deceased was domiciled abroad.These are known as ‘excluded assets’ and include:
- Holdings in authorised unit trusts and open-ended investment companies (OEICs)
- Foreign currency accounts with a bank or the Post Office
- UK government gilts which were issued ‘free of tax to residents abroad’
- Overseas pensions
- Pay and possessions of members of visiting armed forces and staff of allied headquarters
Keeping properties within offshore structures will necessitate payments toward ATED (Annual Tax on Enveloped Dwellings) meaning it may become impracticable to keep properties enveloped within such structures following the loss of IHT protection. Beware capital gains charges on unwinding such structures may apply. However the Budget announcement indicates there will be a consultation on the costs of extracting properties from these offshore structures.
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