18 September 2019 - Article
On 21 March 2012, the UK Chancellor, George Osborne, announced the UK’s Budget with a clear focus on antiavoidance and ending unacceptable tax planning. A large number of the proposals will be of particular interest to the UK resident but non-domiciled community, including private clients from Russian and CIS countries living and/or investing in the UK. Some key points are summarised below.
Ownership of UK residential property
Non-UK domiciled individuals have often sheltered the value of UK property from UK inheritance tax (‘IHT’) through the use of offshore companies. This technique effectively moves the situs of the value of the UK property offshore and so takes it outside of the scope of IHT. However, this common planning has for some years been fraught with difficulties.
With effect from 22 March 2012, the SDLT rate increased to 7% for UK ‘residential’ properties worth more than £2million, with a penal rate of 15% applicable to ‘certain non-natural persons’ investing in UK residential property worth more than £2 million. From 6 April 2013, it is also
proposed that substantial annual charges will be levied in respect of such properties where they are already held by non-natural persons (will include companies, collective investment schemes and partnerships in which a non-natural person is a partner).
The charge to CGT is also to be extended to gains realised on disposals by ‘non-resident non-natural persons’ of UK residential property. This represents a major departure from the current basis on which CGT is levied. These changes will apply from 6 April 2013 and are subject to consultation.
Whilst this gives individuals time to review their current holding structures and for now there is no change to the IHT treatment of such structures, all these changes will create further disincentives to holding residential property through offshore structures.
Non-UK domiciliaries and the remittance basis of taxation
The Government has reaffirmed its commitment to the introduction of a statutory residence test from April 2013 and promised a reduction in the 50% income tax rate to 45% for 2013–14. As previously announced, from 6 April 2012, UK nondomiciliaries who have been resident in the UK for 12 or more years will continue to be able to enjoy the benefit of the remittance basis of taxation, but at the higher cost of £50,000 per year in addition to tax due on income or gains arising in or remitted to the UK.
While it was confirmed that the exemption for investment of untaxed monies into UK businesses by non-domiciliaries will be brought in from 6 April 2012, no further amendments to those rules were announced today. The Government will continue to consult on the extension of the relief and we await the publication of the Finance Bill with keen anticipation. The simplifications to the remittance basis announced in December 2011 and the removal of foreign currency bank accounts from the scope of capital gains tax will also be included in the 2012 Finance Bill and take effect from 6 April 2012.