With the new UK tax year approaching on April 6th, 2017, we here at Pomona Wealth wanted to recap on major developements in UK property ownership and of some new rules and existing rules from 2015
Properties held in Companies or Trust:
Currently, if a non-UK domiciled person or a trust created by a non-UK domiciled person holds UK residential property through an offshore company, the property will not be subject to inheritance tax.
From April 2017, UK residential property will always be within the inheritance tax net regardless of how it is held. This means there could be significant new tax costs. To name two common examples and their impacts:
Where a property is held personally or through a company there will be inheritance tax on death of 40% (above the available balance of the nil rate band of £325,000). The extent to which debt can be set off against the value of the property may be changed by the new rules and this should be reviewed. Consideration should be given to whether the spouse exemption is available, whether corporate ownership should be continued, whether a will should be put in place. Non-UK companies which are held in trusts and which own UK residential property will no longer be excluded property for inheritance tax purposes, which means they may be subject ot ten-early charges of up to 6% and exit charges and where a benefit has been reserved, inheritance tax may also be charged on the death of the settlor.
Restructuirng ownership of a property can result in inheritance tax exit charges, capital gans tax charges and SDLT charges and must be considered carefully with appropriate tax advice.
Annual Tax on Enveloped Dwellings (ATED)
ATED is an annual charge on residential property owned by companies, partnerships with a corporate partner and funds. The amount of ATED charged is shown in the table below.
ATED was introduced in April 2013 for properties worth more than £2m and now applies to any residential property worth more than £500,000.
Capital gains tax
Non-resident individuals, companies and trustees are now taxable on gains
For individuals the gain realised on the sale of a property is taxed at 18% or 28%. Since April 2015 this also applies to non-resident individuals, although they are only taxed on the gain above the value in April 2015. There is potentially complete relief from tax for the gain on a person’s principal private residence (PPR relief), but they must spend at least 90 nights per year in the property for this relief to be available. Where a UK company disposes of a property it is taxed on the gain at corporation tax rates (currently 20%). PPR is not available.
Where a non-UK company disposes of a property where ATED applies it is taxed at 28% for the growth in value since April 2013 (or the acquisition date if later) or if ATED does not apply, it is taxed at 20% on the growth since April 2015. PPR relief is not available. Furthermore if the company is owned by a UK resident individual (or a trust settled by such an individual) then the individual may also be taxable on the gain (with PPR relief not being available).
For more information and specific solution to mitigate these changes, please contact us for more details.
Zurich, January 10th , 2016