Last week, Theresa May and her government made an announcement that the plans to reform non-dom taxation regulations in the UK, will now come into effect.
The Finance Bill which preceded the election is set to go ahead ‘as soon as possible’, including all legislation concerning deemed domicile and enveloped dwellings. Up until now, an individual becomes deemed domicile in the UK for tax purposes when they have lived in the UK for 17 years out of the last 20 years. Although changes to this rule were put on standby during the election in the wake of industry criticism, it has now been confirmed that the government will honour Finance Bill legislation to reduce this deemed domicile time requirement to 15 years out of 20 years. This means that those who then are classed as deemed domicile for income tax, CGT and IHT purposes – i.e. long-term non-doms will be taxable on a worldwide basis.
Other tax reform which will be rolled out include changes to inheritance tax. Currently, non-UK domiciles who own UK property through an offshore structure – e.g. a trust, will be outside of the scope of UK IHT. However, once the Finance Bill reforms take effect post-election, the Government has confirmed that it intends to extend the charge to UK IHT on all UK residential property held indirectly by non-doms through offshore entities, subject to value. This means, at death, UK IHT will be payable at 40% on the net value of the asset regardless of how it is held. Indeed, the shares of these offshore structures will henceforth be treated as UK inheritance taxable assets, as will loans and security for loans used to purchase UK residential property.
Taxpayers and their advisers will surely welcome this final confirmation from the Government on tax reform, which puts an end to a period of extreme ambiguity centring around some of the new rules. Those who had put on hold UK residential property purchases in the face of this uncertainty will now feel able to proceed as the reforms have been set in stone.
If you are planning a property purchase, or have concerns surrounding the upcoming implementation of tax reform, please do not hesitate to contact Enness today. Our expert advisers are happy to talk you through how these changes will impact your enquiry, and help you to secure the best rates and finance for you.