November, 2020
Over the past 8 years, there have been more than 20 changes to property taxation in the UK, the vast majority of which are tax increases. On April 1, 2021, an additional 2% surcharge on Stamp Duty Land Tax (SDLT) for overseas buyers will come into effect, meaning the highest SDLT rate for properties valued over £1.5 million will be 17%.
Perhaps the most profound change concerns the inheritance tax (IHT) treatment of property owned by non-UK companies. As of January 2018, nearly 100,000 properties were owned by non-UK companies. Prior to April 2017, if the owner of a non-UK company was not UK domiciled, the property would not be subject to IHT upon their death because the property was held within an offshore structure. HMRC does not consider such structures to be part of the estate.
From April 6, 2017, these structures are no longer excluded - the value arising from UK residential property held by non-UK companies is subject to IHT upon the owner's death, even if those companies are not domiciled in the UK. HMRC provides relevant examples on its website for reference.
Therefore, since April 2017, owners of non-UK companies holding UK property have a potential IHT liability that did not previously exist. Is there any way to mitigate this situation?
One might think that the company could raise a mortgage against the property and transfer or retain the funds offshore, so only the equity portion of the property value would be subject to IHT. Unfortunately, tax reforms implemented in July 2013 mean this strategy will no longer work, although if the property was originally purchased with a mortgage (and the mortgage has not subsequently increased), then in that case, only the equity is taxable.
The simplest and safest way to handle IHT is to arrange a life insurance policy that pays out upon the death of the person whose death would trigger the IHT. This assumes the person is insurable and premiums are not prohibitively high. If you wish to know more, please contact your financial advisor/insurance broker.
