The Government will shortly be introducing changes to the rules on Inheritance Tax on any UK residential property held by those domiciled outside the UK (commonly referred to as “non-doms”), where such assets are held through a non-UK company.
The current situation is that property owned by way of non-UK company is excluded from liability for Inheritance Tax; however, from the 6 April 2017, property will no longer be ‘excluded’ from this liability. This development means that Inheritance Tax will now be charged on the value of a UK residential property which is owned in an offshore corporate structure upon the death of an individual shareholder.
Likewise, the new rules will apply where an offshore company is wholly owned by an offshore trust. The result being that trustees will have to pay Inheritance Tax on the value of the property at ten year anniversaries and quite possibly, will have to pay an Inheritance Tax exit charge if the property is removed from the trust. Moreover, the changes will affect those non-doms who intend to make a lifetime gift of shares in an offshore company owning UK residential property or alter their offshore structure of such a company.
Such changes are far-reaching in that they will apply without regard to the length of time that the company has owned the property or whether the individual is resident in the UK or elsewhere.
It has now become clear that the Government will not be incorporating any transitional provisions for existing structures and there will not be any forms of relief available for companies that are planning to unwind or ‘de-envelope’ their existing trust structures.
In order to enforce these new rules, an Inheritance Tax return will have to be submitted whenever such a charge arises or where there is a reporting obligation.
It is worth noting that there will also be changes to the rules on Capital Gains Tax and Income Tax for non-doms from the same date onwards.
If the above changes affect you or your company and you would like some further advice on any tax implications and options available, or to discuss private client related issues more widely, please email firstname.lastname@example.org, or call 020 7631 4141 and ask to speak to Helen Langworthy from the Private Client team.