International private clients have taken centre stage in the Budget in the past few years. However, this time the Chancellor has provided some welcome respite, allowing individuals to get to grips with the historic changes - rather than concentrating on new ones.
Hidden in the detail is confirmation that HMRC will publish legislation to confirm what it states is its established legal position of the inheritance tax (IHT) treatment of additions to existing trusts. There will also be a consultation on the potential implementation of a 1% stamp duty land tax (SDLT) surcharge for non-UK residents buying residential property in England and Northern Ireland.
International private clients can now focus on ensuring that they have adapted to the various changes that became effective as of 6 April 2017 and 6 April 2018. There is still time to benefit from some of the transitional reliefs such as rebasing and for individuals to “unmix” their offshore bank accounts prior to the deadline of 5 April 2019. There is also still scope to ensure that any offshore structures are fit for purpose.
VAT and indirect taxes
Stamp duty land tax surcharge for non-UK residents
A consultation will be launched in January 2019 on the potential implementation of a 1% stamp duty land tax (SDLT) surcharge for non-UK residents buying residential property in England and Northern Ireland.
UK resident and non-UK resident taxpayers currently pay the same rates of SDLT on purchases of residential property in England and Northern Ireland. The Government is proposing to introduce a 1% surcharge to increase the amount that would be payable by non-UK residents.
Any change will not automatically apply in Scotland or Wales. Responsibility for such taxes has been devolved to their respective governments, who have subsequently introduced a separate land and buildings transactions tax (Scotland) and a land transactions tax (Wales).
Little detail is currently available about how the proposal would work in practice. It will presumably be levied in addition to existing SDLT rates and surcharges, such as the existing 3% surcharge for purchasing a second residence. This would mean that a non-resident taxpayer purchasing a £1m property could in some circumstances pay almost twice as much SDLT as a UK-resident replacing a main residence. If the Government moves forward with this measure, it will be interesting to see if the change is replicated by the Welsh and Scottish governments, as they did following the introduction of the 3% surcharge for the purchase of additional residences.
When will it apply?
These measures are subject to consultation with no fixed date for implementation.
Payments on account of capital gains tax following residential property disposals
Finance Bill 2018-19 will introduce a requirement for UK resident taxpayers to make a payment on account of capital gains tax (CGT) following a residential property disposal. New legislation will also replace the existing rules for reporting and payment of tax that apply to non-UK resident taxpayers. Budget 2018 has announced some tweaks to draft legislation published in July 2018.
Currently, CGT is typically due for payment by the 31 January following the end of the tax year in which a chargeable capital gain is realised. Non-residents, however, must report disposals of UK residential property via a non-resident CGT return and in many cases pay any tax due within 30 days of completion.
Under the new legislation, the draft proposals for which were published in July 2018, all taxpayers who are subject to CGT must file a tax return and make a payment on account of the tax within 30 days of completion. The payment on account will be self-assessed and will take into consideration unused losses and the person’s annual exempt amount.
UK residents will not need to file a return or make a payment if:
- the gain on the disposal is not chargeable to CGT; or
- it arises from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement; or
- it is foreign property and the gain arises to a person taxed on the remittance basis.
Following further consultation, Budget 2018 has announced the following changes to the legislation:
- a reasonable estimate of valuations will be allowed where these are not available before the reporting deadline;
- sales of non-UK properties by UK residents will be exempt from the rules; and
- non-UK resident companies will be exempt from the reporting requirement.
"It is hoped that HMRC fully publicise the new rules so that taxpayers are sufficiently aware of their reporting requirements.
Allowing the use of a reasonable estimate of a valuation appears to be a sensible amendment to the existing draft legislation. Taxpayers may have otherwise experienced difficulties in complying with the required 30 day deadline to report their capital gains.
It is assumed that non-UK resident companies will be exempt from the reporting requirements because gains made by non-UK resident companies will be subject to corporation tax from 6 April 2019."
When will it apply?
These changes will broadly apply from 6 April 2019 for non-UK residents (with a minor change applying from 6 April 2020) and from 6 April 2020 for UK residents.
HMRC will confirm its established legal position of inheritance tax treatment of additions to trusts
HMRC will publish legislation to confirm what it states is its established legal position of the inheritance tax (IHT) treatment of additions to existing trusts. HMRC will also ensure that transfers between trusts are subject to additional excluded property tests.
Any non-UK property that is added to a trust by an individual who is not domiciled in the UK should remain outside the scope of UK IHT – it is regarded as ‘excluded property’. Until now, however, there has been some uncertainty as to whether or not assets added to an existing trust once the individual has become UK domiciled (or deemed UK domiciled) should also be regarded as excluded property.
HMRC intends to publish legislation to confirm its current view. There is very little detail in the announcement but we assume this view is that an addition of assets to a trust originally settled by a non-UK domiciled settlor is not excluded property if the addition occurs when the individual is either UK domiciled under common law principles or is deemed-UK domiciled.
The legislation will apply to IHT charges arising on or after the date that Finance Bill 2019-20 receives Royal Assent, regardless of whether or not the additions were made prior to this date.
"HMRC will also introduce legislation to ensure that transfers between trusts will be subject to additional excluded property tests.
We expect that the proposed new legislation will address a decision in a recent tax case, Barclays Wealth Trustees (Jersey) Limited & Anor v HMRC  EWCA Civ 1512, in which the Court of Appeal found that transfers of property between excluded property settlements after the settlor became deemed UK-domiciled did not cause the property to become subject to UK IHT.
There is little detail of how the proposed new legislation will apply and we await draft legislation from HMRC to provide further clarity."
When will it apply
These changes will apply to IHT charges arising or transfers between trusts made on or after the date on which Finance Bill 2019-20 receives Royal Assent.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.