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.

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