Treasury to stamp out non dom IHT loophole

Non-doms will not longer be able to shelter their UK residential property from the taxman next year under changes proposed by the government.

In 2015’s Summer Budget the then-chancellor George Osborne announced plans to change the tax regime for people who have a foreign domicile. HM Treasury stated these changes would bring an end to permanent non-dom status for tax purposes.

On Friday (19 August) it published a consultation on how non-doms could be prevented from sheltering UK residential property from inheritance tax.

This will involve abolishing the practice known as “enveloping”, where individuals hold UK residential properties through an overseas company or similar vehicle.

The document stated that once legislation comes into effect, shares in offshore close companies and similar entities will no longer constitute excluded property if – and to the extent that – the value of any interest in the entity is derived, directly or indirectly, from residential property in the UK.

“Similarly, where a non-domiciled individual is a member of an overseas partnership which holds a residential property in the UK, such properties will no longer be treated as excluded property for the purposes of IHT,” it read.

At the moment, UK domiciled individuals are liable to pay IHT on their worldwide property, but those who are non-UK domiciled are only liable on the property which is situated in the UK, even if they live in this country.

It is standard practice for non-doms to hold UK residential properties through an overseas company or similar vehicle, meaning the property of the individual consists of overseas shares, which will be situated outside the UK and are therefore excluded from IHT.

The Treasury said its new rules would come into effect on 6 April 2017.

The government added that it considered encouraging non-doms to “de-envelop” their properties, but came to the conclusion this wouldn’t be appropriate.

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Written by: Houseladder