Important changes to UK tax legislation will come into effect on 6 April 2017. These will fundamentally change the position on long-standing principles of the UK tax system. Many individuals will be affected by these amendments and they should consider whether any action ought to be taken before 5th April.
Inheritance Tax on Residential Property
The previous exemption from inheritance tax for non-domiciled individuals who own UK residential property via offshore structures will be abolished as of 6 April 2017. This also affects trusts which own UK residential property indirectly.
We now have considerably more detail as to how this will work. There are further factors to be considered such as the fact that certain loans to acquire UK property will also be caught by this regime and the issue that certain proceeds of sale will be deemed to be UK property for two years.
There are still steps which can be taken to unwind structures although careful consideration is required in all cases. Re-structuring may raise the risk of charges to stamp duty land tax and capital gains tax.
Although certain re-structuring will still be possible after 6 April 2017, the options will be more limited at that stage.
We recommend order to assess what can be done to improve the tax position.that anyone with this type of structure has their matter reviewed now in in order to assess what can be done to improve the tax position.
"Deemed" Domicile for long-term UK residents
In order to overcome the situation where individuals might claim to be non-UK domiciled even if they reside here for many years, there will be a new deeming provision which comes into effect from 6 April 2017.
This now means that individuals who have resided in the UK for at least 15 of the previous 20 tax years will have to be considered as domiciled in the UK for all tax purposes. Such individuals will no longer be able to claim the remittance basis of taxation. Their worldwide assets will also become subject to UK inheritance tax.
However, there are transitional arrangements to ease the change of regime for non-domiciled individuals. This may well provide some planning opportunities. Again any necessary steps need to be considered now in case action is required prior to 5 April.
Change to treatment of capital distributions from offshore trusts
There are already various provisions which impose tax on UK resident beneficiaries of overseas trusts when they receive capital distributions.
Legislation will come into effect on 6 April which extends these hugely.
It is crucial that these structures be reviewed before 5 April. If steps are not taken prior to then, there will be significant restrictions as to how beneficiaries can extract capital from these trust structures.
We are able to review your position in light of all the above and are advising other clients on solutions to all of these.
If you are affected by these changes please contact us as soon as possible to discuss how we might assist.
January 2017 Graeme Perry
Solicitor and Director
Sykes Anderson Perry Limited