As can be read in my blog "Saga Claims Inheritance Tax Payments are on Course to Hit Record Highs" the Government are collecting much more inheritance tax (IHT) purely because of the increase in house prices. To date this has been in respect of what would generally be considered typical family homes owned by only moderately wealthy people. From April 2017 this is set to change and many more properties will be caught.
The background to IHT
IHT is payable on property situated in the UK regardless of where the owner is resident or domiciled. For individuals not domiciled in the UK (non doms) the purchase of property here was usually through an offshore company and as the individual would own the shares in the company rather than the property itself no UK IHT would be due on their death.
Changes to the taxation of non doms
As part of a package of measures announced regarding the taxation of non doms this will no longer be effective. Offshore structures will be deemed to be transparent for inheritance tax purposes and tax will be payable as if the individual owned the property personally. This only applies to residential property however it does include rental and investment properties.
At the time the changes were announced in July 2015 there were suggestions that as the Government wanted people to transfer ownership (known as de-enveloping) there may be relief from potential capital gains tax and stamp duty land tax charges which would arise from such a transaction.
The full details of the changes and any reliefs were delayed and there were suggestions that they may not be introduced.
Changes to go ahead with effect from 6th April 2017
Last month however it was confirmed that the changes would go ahead as planned with effect from 6th April 2017 and there would be no de-enveloping relief. As well as on death there can be charges when the shares are disposed of or transferred into a trust and individuals need to be aware that they are responsible for ensuring relevant transactions are reported to HMRC and any tax due paid.
It is more important than ever that the correct structure is used for buying property and that this is reviewed periodically to ensure it is achieving the desired results.