At the Summer Budget 2015, the government announced that it would change the tax regime to bring an end to permanent non-dom status for tax purposes.
This would mean that non-doms can no longer escape a UK inheritance tax charge on UK residential property through use of an offshore structure like a company or a trust.
A consultation, launched in September 2015, has now ended and the Treasury has set out the detail of proposals to charge IHT on UK residential property. A further consultation has been set up to look at certain aspects of the proposals.
The Treasury paper stated: “Individuals who are non-domiciled in the UK currently enjoy a significant advantage over other individuals for IHT purposes. UK domiciled individuals are liable to IHT on their worldwide property. However, those who are non-UK domiciled are only liable on the property, which is situated in the UK.
"The government plans to bring residential properties in the UK within the charge to IHT where they are held within an overseas structure.
“This charge will apply both to individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled. These changes will come into effect from 6 April 2017 and will be legislated as part of the 2017 Finance Act.”
London Chartered Accountants Blick Rothenberg called for a delay.
Nimesh Shah, Partner at Blick Rothenberg, said it was important to fix the rules for the long-term, “especially after the almost annual tinkering to the rules since the last major reforms in 2008”.
He said the new rules will effectively bring all UK residential property within the scope of IHT, irrespective of how the property is owned, for example through a company.
He said: “However, it’s disappointing that the Government has not taken forward a relief or some form of relaxation when extracting properties from companies.
“The motive behind recent measures has been transparent ownership of residential property, and to not offer any kind of transitional rules goes against previous suggestions. Our expectation is that it was simply too difficult to offer a workable relief and so this has been shelved.
“In slightly more positive news, the consultation has offered some encouragement to non-domiciled individuals to remit monies to the UK, which will be helpful for inward cash flow into the UK economy.”