Summer Budget 2015 Highlights


There has been a fundamental change in the applicability of the UK tax regime to non-domiciled clients owning UK residential property, beneficiaries of company-held UK residential property as trustees and also beneficiaries of offshore settlements. Further clarification will be available once the draft legislation has been provided.

We have listed below the headlines of the changes most likely to affect those non-domiciled individuals in relation to UK property but clients falling into any of the above categories are strongly advised to contact the Bishop & Sewell Trust Tax and Estates department to find out how they will be affected by these changes.

Inheritance Tax

Nil-rate band

The current nil-rate band of £325,000 will now be frozen until April 2021. It was previously the case that this was frozen only until April 2018.

Additional nil-rate band

An additional nil-rate band will be introduced which will be utilisable only in relation to a main residence which is passed to direct descendants.  This will be phased in over a 4 year period commencing in 2017-18 and will initially be at a level of £100,000, increasing in increments of £25,000 annually to a level of £175,000 in 2020-21.  This amount will reduce in relation to properties valued over £2m and will reduce to nil where a property has a net value of £2.35m or more.  In common with the general nil-rate band, this additional amount will be transferable between spouses.  This announcement is largely in accordance with previously published proposals.

Deemed domicile

An individual will (with effect from April 2017) be deemed to be domiciled in the UK for inheritance tax purposes once they have been UK tax resident in 15 tax years out of any period of 20 tax years.  This new rule will apply in addition for income tax and capital gains tax purposes.  The current rule is that an individual will only be deemed to be domiciled in the UK for inheritance tax (but not for income tax and capital gains tax purposes) when they have been UK resident for at least 17 out of any 20 tax years.

Those most affected by change to the IHT rules will be clients (possibly British born) with Indian and Pakistan domicile who have the most privileged Double Tax Treaty situation, currently, which may be considerably restricted.

Individuals born in the UK

Individuals born in the UK to UK domiciled parents will in future be treated as being UK domiciled for tax purposes for periods while they are UK resident even if, under current law, they would be able to claim that they have acquired a domicile of choice in another country.

UK residential property

Under current law, UK assets held by a non-UK domiciled person through a non-UK company are excluded from inheritance tax.  However, this rule will no longer apply, from April 2017, in relation to UK residential property held in a non-UK company, and such property will thereafter be fully subject to inheritance tax, even where the ultimate beneficial owner is non-domiciled.  It is unclear how this change will be enforced in practice although the budget press releases indicate that new reporting and enforcement provisions will be introduced, which may to some extent mirror the provisions introduced in April 2015 imposing a CGT charge on non-residents disposing of UK residential property.

Capital Gains Tax

CGT will be chargeable according to the Taxation of Chargeable Gains ACT 1992 (that is if no other relief applies) on the disposal of any property, worldwide, if the non-domiciled person has been resident in the UK for 15 of the last 20 years.

We will have to wait to see the detailed legislation to see how and to what gains this is to apply.

Income Tax

Offshore Landlords

The changes to the domiciled or non-domiciled status do not  affect the change to the tax relief applicable to the gross rent received from let property, but the restriction of the deductibility of mortgage interest , applicable from 2017, will also affect offshore (and non-domiciled ) landlords.

Remittance Basis of Charge

There is nothing written into the budget papers to explain how the new rules removing the privilege from non-domiciled status will interplay with the rules for the Remittance Basis of Charge; currently, persons resident in the UK for 7 of the previous 9 years might, on payment of £90,000.00 each year, claim NOT to pay UK tax on their offshore income and gains which they did NOT remit to or bring into the UK.

This may considerably affect purchasers of property as it has been normal practice for a client (or his parents) to assist with the purchase of a UK property by sending capital funds into the country.

National Insurance Contributions

NICs Employment Allowance

From April 2016, the government will increase the annual employer National Insurance contributions Employment Allowance from £2,000 to £3,000.

Also with effect from April 2016, companies where the director is the sole employee, typically owner-managers, will no longer be able to claim the Employment Allowance.

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