Inheritance Tax: overseas property whose value is attributable to UK residential property
Published 5 December 2016
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This publication is available at https://www.gov.uk/government/publications/inheritance-tax-overseas-property-whose-value-is-attributable-to-uk-residential-property/inheritance-tax-overseas-property-whose-value-is-attributable-to-uk-residential-property
Who is likely to be affected
Non-domiciled individuals who hold residential property in the UK through an overseas company, trust or partnership.
General description of the measure
The measure will extend the scope of Inheritance Tax (IHT) to residential properties situated in the UK which are held by non-domiciled individuals through overseas vehicles. This will be the case whether or not the individual is resident in the UK.
Policy objective
The measure will ensure that residential properties in the UK are subject to IHT where they are held by non-domiciled persons through overseas structures.
Background to the measure
The extension of IHT to UK residential properties held indirectly by non-domiciled individuals was announced at Budget 2015 and further detail was provided in a consultation document published on 19 August 2016. This is part of a wider package of reforms to the way in which non-domiciled individuals are taxed in the UK. The government’s response to the consultation was published on 5 December 2016.
Detailed proposal
Operative date
The measure will apply to all chargeable transfers which take place on and after 6 April 2017.
Current law
The current IHT legislation is set out in the Inheritance Tax Act (IHTA) 1984. Section 6 of the Act provides that an individual who is not domiciled in the UK is not liable to IHT on any of their property which is situated outside the UK. Section 48 provides the same treatment where property is held by a settlor of a trust who is domiciled outside the UK.
Currently, a UK residential property which is held by such an individual through an overseas company, trust or similar structure, would be treated as situated outside the UK and therefore outside the scope of IHT.
Proposed revisions
Legislation will be introduced in Finance Act 2017 to amend IHTA by inserting a new Schedule A1. The effect of the new Schedule will be to bring property within the scope of IHT to the extent that its value is attributable to a UK residential property where it is held by a non-domiciled individual. It does so by treating the interests of participators in a close company, or of members of an overseas partnership, as not excluded property for the purposes of IHT where its value is attributable to a UK residential property interest.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| -5 | +30 | +90 | +60 | +70 |
These figures are set out in Table 2.2 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costing document published alongside Summer Budget 2015.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Changes to the IHT rules may incentivise some non-domiciled individuals to remove their UK residential properties from overseas vehicles and move into a simpler structures outside the scope of Annual Tax on Enveloped Dwellings charges which currently apply to them.
Impact on individuals, households and families
This measure affects non-domiciled individuals who hold UK residential properties through overseas vehicles.
It is not anticipated that there will be adverse impacts on any other group with protected characteristics.
Equalities impacts
Section 149 of the Equality Act 2010 and relevant Northern Ireland legislation have been considered and the measure will have no adverse equality impacts.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations’ administrative burden as it only affects non-domiciled individuals who hold UK residential properties through overseas vehicles.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be no significant operational impact on HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Aidan Close on Telephone: 03000 585255 or via email: aidan.close@hmrc.gsi.gov.uk.