“Non doms and offshore trusts will become subject to IHT on enveloped structures from 6 April 2017 and urgent action is needed to reduce their exposure,” said Adrian Benosiglio, tax partner at accountancy firm RSM.
“With only five months to go, formulating and implementing the right solution could be tight,” he said.
Enveloping goes
Currently, an individual domiciled outside the UK is only subject to IHT on directly held assets, and to avoid this charge it has been common to hold these assets through an offshore company, which is known in the industry as “enveloping”.
Under the planned changes, shares in an offshore company will be subject to IHT to the extent they derive value from any UK residential property.
“This could bring offshore investors into the scope of UK IHT for the first time,” Benosiglio said, adding that the current rate of IHT is 40% for individuals.
“Some exemptions exist where a spouse inherits. In this regards wills may need to be reviewed,” he said.
London property hit
The government’s planned change, which is contained in the new Finance Bill, is expected to make offshore investment in UK property less attractive, and could have a big impact on London property where overseas investment through these types of offshore corporate structures is particularly high.
“Any non-UK domicile currently invested in UK property through an overseas corporate structure should speak with their financial adviser,” said Rachel Griffen, financial planning expert at Old Mutual Wealth.
“From 6 April 2017 these structures should be unwound as they are no longer effective and won’t justify the ongoing fees involved,” Griffen said.
“If individuals are concerned about the exposure to UK IHT their adviser can put a plan in place to help beneficiaries pay any IHT liability, such as setting up a life assurance policy, or they could look at using trusts,” she added.
According to RSM’s Benosiglio, prior to April 2017 investors should consider:
- Gifting property or shares
- Selling property or shares
- Settling shares into offshore trust structures
- Distributing out of trusts Ensuring wills are up to date.
“Changes to the non dom rules contained in the draft Finance Bill 2017 leave affected taxpayers with little time to organise their affairs,” he warned.
