In the fallout of Brexit, a new government was installed, complete with a new Prime Minister and a new Treasury Secretary. But the decisions made by former officials are still set to be implemented. Certain changes to tax laws set out by George Osborne in former budgets are going to come into effect in 2017. Many of these changes are going to have an impact on investors, particularly foreign investors who are living or have dealings here in the UK. If this accurately describes you, then here is what you need to be aware of:
Inheritance Tax Changes
As of April 2017, the time-frame in which a foreign national living in the UK becomes domiciled will shorten. Previously, an individual would have to be living in the UK for 17 of the last 20 tax years before being considered domiciled. The new law lowers this to 15 of the last 20 years.1 This is important because a person who is domiciled will need to abide by the same tax laws as a UK national, even if they are not a citizen themselves. You will be required to follow UK inheritance tax laws on all your global assets, not just on assets you control in the UK.
If you are coming up to your 15th year, then speak to a financial advisor about how you might be affected by inheritance laws.
The changes to domicile law will affect investors in other ways, too. Currently, foreign nationals in the UK are not required to pay tax based on their foreign assets for their first five years living here. During this period of time, they are described as being ‘on remittance’.
Foreign nationals can choose to remain ‘on remittance’ after the initial five year period, but they are required to pay an annual fee to HMRC in order to do so. However, remittance can only continue until the individual has achieved domicile status – which, as mentioned, will now occur after living in the UK for 15 of the last 20 tax years, as opposed to the last 17 of 20.1 Again, this will affect foreign nationals living in the UK who are yet to become domicile, but could do so in the future.
If this situation is in your near future, it would be wise to contact a financial advisor to discuss your options.
Annual Gift Allowance
If the new laws being implemented will affect your domicile status, then you will be liable to tax inheritance laws, as stated above. However, you will also be eligible for the annual gift allowance of up to £3,000.2 This means you can pass on your wealth, bit-by-bit over a series of years, to your family members. Without having to pay tax on that money. It is a slower, less efficient process of passing down money – but does allow your family to inherit as much of your wealth as possible. Obviously this gets more complicated if you wished to pass down assets. Again, it is best to speak directly with a financial advisor to discover all your options.
Capital Gains Tax Allowance
Similar to the above, foreign investors may be liable to more regulations, but they will also be eligible for more benefits. And in order to curtail any losses that might be made through these regulations, they should take advantage of these newfound aids. Aside from inheritance laws, foreign expats will now also have to abide by capital gains tax laws, once domicile status is earned after 15 years.2 But, investors can offset that (to an extent), as they are now entitled to the annual tax-free allowance of £11,300.2 Capital gains tax applies when you sell a property (that isn’t the home that you live in) at a profit. The profit itself is what is taxed, and not the entire value.
Offshore Company Structure
The government is looking to ensure that all foreign investors are more transparent with their dealings. As such, those investing in UK property through what is known as “enveloping” – which is when you use an overseas corporate entity to make your investments – will no longer be exempt from inheritance tax laws. This change will come into effect as of April 2017.3 For some, this could have a significant impact, as many investors use this system when making their investments. But it may no longer be effective. As always, the best thing for foreign investors residing in the UK is to obtain independent financial advice – and analyse all their options.
If you have any questions about property investment in the UK, then Cogress will be happy to offer any assistance. Simply contact us here.