The Blog

UK inheritance tax move to hit non-domiciled property owners

The Government plans to extend its inheritance tax (IHT) rules to cover properties held by non-domiciled residents in an offshore entity.

Under new guidelines from the Treasury issued in a consultation paper last week, residential property will be liable to inheritance tax (IHT) even if it is owned by an offshore trust.

As part of 2015’s Summer Budget, the Government announced it would be amending the rules for non-dom residents, particularly in terms of IHT.

Under the new guidelines, non-dom residents who own residential property in the UK will be subject to inheritance tax from April 6 2017. “This charge will apply to both individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled,” according to the Treasury’s consultation paper.

It added that no change will be made to the taxation of UK property which is held by corporate or other structures and which are owned by UK domiciled individuals or by trusts made by UK domiciled individuals.

Many advisers have welcomed this clarification, but there are concerns that this might alienate current non-doms and deter wealthy individuals or families who are considering moving to the UK.

There had previously been hints that tax relief may be available for those who decide to remove UK properties from foreign company ownership structures, but the Treasury has now decided reducing the tax costs associated with restructuring UK property ownership would not be appropriate.

In the consultation paper the Treasury says: “While the Government can see there might be a case for encouraging de-enveloping, it does not think it would be appropriate to provide any incentive to encourage individuals to exit from their enveloped structures at this time.”

The Treasury said the reason for the planned changes is because non-doms currently enjoy a significant advantage over other individuals in this area.

The Government has now opened a consultation on the new IHT rules, which will run until 20 October 2016, but said the rule change it has outlined has been determined to be the best option and it is currently developing a framework for implementation.

Let Property Campaign brings in £7.9 million in additional landlord tax

HM Revenue and Customs have been targeting UK landlords with the Let Property Campaign since autumn 2013, in part of a series of campaigns in their continued tax avoidance crackdown.

UK Landlords who make an income from residential properties at home or abroad (including holiday homes, specialist landlords and those above the ‘Rent a Room Scheme’ threshold) have been encouraged to disclose any previously undeclared tax under the Let Property Campaign.

The campaign offers more favourable terms to those who make a voluntary disclosure.

In 2014, HMRC reports that around 40,000 landlords who had failed to come forward were sent a letter which gave them 30 days to bring their tax affairs up to date. However, those who made a ‘prompted disclosure’ as a result of these letters were not offered the same favourable terms.

Ignoring the letter risks penalties of up to 100% of the unpaid tax liabilities and up to 200% of offshore related income. HMRC can also conduct an investigation and in certain cases the result may be criminal prosecution.

It is suspected that many buy-to-let landlords with undisclosed rental profit have misunderstood the rules. The most common misconception is that all mortgage repayments can be offset, however only the interest proportion is permitted.

Even if landlord tax is undeclared or under-paid because of an error or misunderstanding, it’s important that they come forward to bring their tax affairs up to date as soon as possible.

It is reported that HMRC have raised £7.9 million in additional tax as a result of the campaign so far.

Many letting agents have also received statutory notices and are legally obligated to give HMRC access to their landlord records. HMRC can also access records held by the Land Registry to detect undeclared income. Their software is getting more sophisticated and the records they can access is increasing.

 

The Let Property Campaign is one of a series of campaigns targeting different sectors and industries, and with an increase in data gathering the message is clear – it’s better to come forward and get your records in order now, rather than trying to hide.

For more information about the penalties that apply, Download our free guide to Landlord Tax Penalties.

 

Landlords with undeclared or under disclosed rental income, who have not yet been contacted by HMRC, are strongly urged to bring their records up to date as soon as possible. Favourable terms and affordable repayment plans can often be negotiated.

If you would like to discuss this further, or you have received a letter from HMRC about the Let Property Campaign, please contact us to speak to Anthony Middleton.

Landlord tax the latest target in tax avoidance crackdown

Landlord tax is the latest target of a HMRC campaign to collect undeclared income, as part of a series of campaigns running since 2007 in their continued tax avoidance crackdown.

HMRC campaigns are aimed at groups of taxpayers where they suspect a higher risk of tax error. Since introducing them in 2007, HMRC have reportedly collected over £596 million in tax from people making voluntary disclosures, and over £338 million from follow up activities.

The legal sector have recently been targeted with the Solicitor’s Tax Campaign, and previous campaigns have been aimed across the full spectrum of businesses and professions, including healthcare and doctors, electricians, plumbers and offshore accounts and assets.

The current Let Property Campaign is an opportunity for landlords to bring their tax affairs up to date and declare previously undisclosed income to the tax authorities under the best possible terms.

If you rent out property in the UK or abroad you may be able to take advantage of the Let Property Campaign to bring your tax affairs up to date.

Find out more by downloading our Let Property Campaign Fact Sheet.

If you are considering making a disclosure, or have received a letter from HMRC regarding the Let Property Campaign, we strongly recommend that you obtain professional advice.

If you are a letting agent who is concerned about how this may affect you or your clients, or you have been approached by HMRC, we can help.

For more information, or for a free initial consultation, please contact us to speak to Anthony Middleton.

HMRC Let Property Campaign

The Let Property Campaign is an opportunity for landlords to come forward and declare previously undisclosed income to the tax authorities.

We are currently seeing more individuals receive a letter from HMRC under the title of the Let Property Campaign.

We recommend that landlords who have undeclared rental income make a voluntary disclosure to the tax authorities using the Let Property Campaign. Lower penalties and payment plans can be negotiated for those who come forward and make what is known as an unprompted disclosure to the tax authorities.

If HMRC have sent you a letter under the heading Let Property Campaign, the disclosure will be classed as prompted and the penalties charged less favourable. Remember, penalties are tax geared, and are based on a percentage of the tax due as a result of the previously undeclared income.

Should the Let property Campaign close without you receiving a letter under the Let property Campaign or you having made an unprompted disclosure, and HMRC later find out about the undeclared income, then penalties will be severe, potentially up to 100% of the tax due and landlords risk being investigated under Code of Practice 8/9 with the possibility of a criminal prosecution.

Landlords should also remember that HMRC have a wealth of information to identify individuals who have not declared rental income. This includes computerised records from other government agencies including the Land Registry, together with the details passed to them by letting agents who have been compelled to pass the names and contact details of registered landlords.

For further information, or to arrange a free initial consultation please telephone Anthony Middleton on 01905 777 600.

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