Residential property will be liable to inheritance tax even if it is owned by an offshore trust under new guidelines from the Treasury. The decision adds to pressure on wealthy families and individuals living in the UK, but domiciled elsewhere, to reconsider the benefits of remaining in the UK.
As part of last year’s summer Budget, the government announced it would amend the rules for non-dom residents, particularly in terms of inheritance tax. However, many advisers had expected the long-awaited guidelines to be pushed back a year — or even dismissed after the UK’s decision to leave the EU. Now questions have been raised over whether this will be a further factor driving wealthy non-dom residents away from the UK.
“The government have taken everyone by surprise,” said Matthew Braithwaite, private wealth partner at Bircham Dyson Bell, the law firm. “There’s lots of talk about people leaving, but it depends on everyone’s situation.”
Under the new guidelines, non-dom residents who own a residential property in the UK will be subject to inheritance tax from April 6 next year. “This charge will apply both to individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled,” the Treasury said in its consultation paper.
Yet despite concerns that this might alienate current non-doms — and deter wealthy individuals or families considering moving to the UK — many advisers welcomed the clarification from the Treasury.
“There has been speculation that the EU referendum vote might push back, or even see the end of, the proposed non-dom reforms, but this update indicates that change is still on the government’s agenda and that the timetable has not changed,” said Lucy Johnson, special counsel at Withers, the law firm. “Nonetheless, further information has been long awaited and there are some helpful proposals in the document. “
The new guidelines allow non-doms a grace period from April 2017 to April 2018 to separate their various assets, Ms Johnson added. Individuals and families will also be able to rebase their assets as at April 2017 for capital gains tax purposes. “The proposals for the taxation of income and gains in trusts have been improved too,” she added.
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