Inheritance tax rules are changing for wealthy non-domiciled homeowners with property in Britain.
The new measures are really the latest action to trigger an old announcement and come as no surprise.
In the 2015 Summer Budget, then Chancellor George Osborne signalled non-domiciled home owners would face a new inheritance tax charge to make them pay the same tax as British property owners.
He also flagged that permanent non-domicile tax status would be scrapped.
Now, new Chancellor Phillip Hammond is readying the legislation to bring both measures to the statute book.
In a consultation paper, the government explains that non-domiciled home owners have a significant tax advantage over other property owners.
Equalising tax
A UK born property owner has to pay inheritance tax on their worldwide property holdings, while a non-domicile only pays on homes in the UK.
Many avoid this simply by setting up a company to buy and sell property, which is excludes the assets from British inheritance tax.
The new rules ignore the corporate or other wrapper protecting UK property holdings and bring them within the realms of inheritance tax.
The proposed law change is expected to start from April 6, 2017.
The measure will shift shares in offshore companies from excluded property for calculating inheritance tax. The same rule will apply to other standard tax planning entities such as partnerships and trusts.
The consultation ends on October 20.
A non-domiciled individual is someone who has a permanent home outside of Britain, but resides here on a temporary basis.
Tax benefits
The status can provide extensive tax advantages as income and capital gains in the UK are taxed here, but other worldwide income is not.
However, a British tax resident has to pay tax on their worldwide earnings and capital gains in the UK.
Other non-dom tax changes are already in the pipeline – much to the chagrin of private wealth lawyers.
The changes will make non-doms liable to income tax, capital gains tax and inheritance tax on their worldwide income and assets.
“The majority of non-domiciled individuals who come to the UK leave again within a few years from the date they first arrive and so will not be affected by these reforms. These announcements have been carefully targeted to address some unfairness in the current rules in a way that will not deter those individuals who might be considering a move to the UK,” says the HMRC consultation.
