Impact of the UK Summer Budget 2015
Wednesday 06 April 2016
By Helen Woods, Managing Director – Equiom Solutions Limited
The 2015 UK Summer Budget revealed a number of changes that will impact long-term UK resident individuals, individuals returning to live in the UK and those holding UK residential property.
In recent years there has been a raft of new legislation affecting non-domiciliaries and UK residential property. These more recent changes, which are yet to be finalised, will need to be considered carefully by those who may be affected by these new rules.
The first change impacts on individuals who have a non-UK domicile of origin and have been resident in the UK for more than 15 years in April 2017. The good news is that we now have more clarity regarding an individual’s UK resident status following the introduction of the Statutory Resident Test (SRT), effective from April 2013. This means that an individual is no longer reliant on limited legislation, revenue practice and case law which, in some cases, could be more than 100 years old and not relevant in today’s society.
The SRT can be broken down into three parts:
- Automatic residence test
- Automatically not residence test
- Connecting ties – if neither of the above tests apply
When looking at the new legislation affecting long-term UK resident non-domiciled individuals, part years of residence will now need to be considered, as well as full tax years. This means that an individual could become deemed to be UK domiciled under the new rules, before they have spent 15 full tax years in the UK.
While we do not have the detail of how these long-term UK resident non-domiciled individuals will be taxed in respect of offshore structures, it does appear that offshore structures created while the individual is not deemed domiciled under the new rules will continue to provide UK inheritance tax protection and income tax and capital gains tax mitigation. It will therefore be very important for those non-UK domiciled individuals who have been in the UK for a number of years and may be caught by the new deeming provisions to consider setting up a trust before April 2017.
The second rule, on which there has been much less publicity, applies to individuals who have a domicile of origin and, importantly, were born in the UK but have acquired a domicile elsewhere. These individuals may have lived outside the UK for most of their lives but, following the legislation due to be introduced in April 2017, they will be deemed to be UK domiciled for all taxes with effect from April 2017 if they become UK resident. This includes those who are already back in the UK and who perhaps set up some sort of structure before moving back to the UK. Under existing legislation these trusts are likely to be totally outside the scope of UK inheritance tax (IHT). This means planning, which would normally be undertaken for these individuals will need to be reviewed, to take advantage of the opportunities available.
The third change introduced in the July 2015 budget is applicable to UK residential property. In recent years there have been a number of attacks relating to UK residential property, including the introduction of the Annual Tax on Enveloped Dwellings (ATED), a Capital Gains Tax (CGT) charge on the disposal of UK residential property by non-UK residents and substantial increases in the rates of Stamp Duty Land Tax (SDLT), meaning that after April 2016 SDLT rates up to 15% could be due.
This final change by HM Revenue and Customs, details of which have still not been published, means that any UK residential property, even when held through, for example, an offshore company, will be within the scope of IHT from April 2017. This will affect a large number of people, including non-UK resident and domiciled individuals and those individuals who are resident in the UK but not UK domiciled. In certain cases it may be advisable to consider taking property out of structures, but care is needed as this may trigger further unwanted tax liabilities. The Chancellor also indicated that there may be ‘de-enveloping reliefs’ but at the present time, we do not have any detail regarding the extent of these.
These changes introduced in July 2015 will affect many people, including long-term UK resident non-UK domiciled individuals, individuals who have acquired a domicile elsewhere but are returning to live in the UK and anyone holding UK residential property. In all these cases, a review will need to be completed before April 2017. In many cases there will be planning which can be undertaken in respect of existing structures or new structures will need to be set up to mitigate the effects of future legislation.
For more information on this subject, please contact Helen Woods.