A
A is for agricultural property relief. The UK Budget of 2009 extended this valuable IHT relief beyond its historic geographic boundaries of the UK, Channel Islands and Isle of Man, to include agricultural property in the EEA. A change that could be of benefit to those with farming interests abroad.
This is the first of the European interventions in IHT in our A to Z, coming on the back of a European Commission press release that prompted the change in 2009, which stated this IHT relief was not compatible with EU law.
B
B is for bank accounts. From 6 April, 2012, foreign currency accounts will not be in scope for UK Capital Gains Tax (CGT). Prior to this date, even small withdrawals by a UK taxpayer from a foreign currency account could generate a gain which might be taxable.
C
Charities in the EEA, as well as those in the UK, can now benefit from the various charity tax reliefs and exemptions under UK law, further to the UK Budget 2010, and a European Court of Justice case in 2009 which brought the issue to a head.
This is good news for clients who want to leave assets to certain non-UK charitable organisations in their Will, for example, where the IHT exemption could be available.
D
Deemed domicile and its interaction with certain Double Taxation Agreements is one to watch for. The ‘17 out of 20 years’ rule for UK residence will bring some people within the UK IHT net on death.
However, there are some points of detail to watch for in France, Italy, India and Pakistan, where the deemed domicile rules may not apply as a result of Double Tax Treaties which were in place before 1975.
E
Excluded Property Trusts offer an opportunity for non-domiciled individuals to shelter assets from the possibility of future UK IHT charges. Where an asset is situated fundamentally affects its tax treatment.
Excluded Property Trusts have to hold non-UK situated property gifted to it by a non-UK domiciled person. With this combination, the trust assets are outside the scope of UK IHT, while the settlor can continue to benefit from the trust. Offshore bonds can be an option here.
F
France has introduced new tax and disclosure rules that affect trusts in 2012. Action may be required by 15 June. Trustees of a trust where either the settlor or one of the beneficiaries is resident in France (or where there are French assets) will need to comply with the new disclosure requirements within this timeframe.
The scope of French wealth tax has also expanded such that the value of a UK trust could end up being aggregated with the settlor’s wealth tax return, where that settlor has moved and become resident in France. Penalties can apply, so early tax advice is recommended.
G
G is for GAAR (General Anti-Abuse Rule). Consultation is underway on the introduction of a UK GAAR. Many countries, such as the USA, Spain, Australia and Ireland, already have a GAAR. They act as a ‘catch-all’ deterrent, designed to prevent schemes from exploiting loopholes in the tax legislation.
The breadth and scope of taxes covered along with clearance procedures vary from country to country. The UK GAAR is expected to broadly follow the recommendations in the Aaronson Report. This proposes a narrowly focused rule which is not intended to catch centre ground tax planning.
H
H is for holiday properties – those which are let for a commercial rent and which fall under the Furnished Holiday Let (FHL) rules for UK tax, have new rules from 6 April, 2012.
This regime had already expanded to include both UK holiday properties and holiday lets in the EEA, from 2009 (for example, holidays homes in France and Spain). Now, the criteria to qualify as an FHL will become tighter.
The minimum days of occupancy increase from 70 to 105 from 6 April, 2012, among other changes. The attraction of the FHL regime lies in the availability of capital allowances, as well as CGT benefits in accessing rollover relief, if sale proceeds are reinvested into another business.
I
Inheritance tax – is the grass always greener? Some countries have abolished it in recent years (Hong Kong in 2006, Singapore in 2008), while others have tightened rules around IHT planning.
In the UK, since April 2011, any new IHT planning ‘scheme’ must be notified to HMRC as part of the Disclosure of Tax Avoidance Scheme rules. Happily, many options such as discounted gift trusts and loan trusts are unaffected by the legislation, since they pre-date it.
J
J is for joint property. Just exactly how are assets held between a husband and wife? In English law, this tends to centre on whether assets are held as tenants in common (such as separate shares, where inheritance can be taken care of in a Will), or joint tenants (share is automatically inherited by the other).
In a European context, the point to be aware of is that European matrimonial property regimes are quite different, giving people choices about whether to have community of property. Who owns what, and what happens on death or divorce, are questions which involve looking at the property law details in the relevant jurisdiction.
K
K is for kids. Under UK law, children will normally take their domicile of origin from their father. It is not necessarily the country in which they were born or currently reside. Until a child reaches the age of majority their domicile will follow that of their father. If their father acquires or loses his UK domicile, so too will the child.
L
L is for life assurance policies. The recent UK Budget included various measures that affect life assurance policies. Contributions to new qualifying policies, such as MIPs, will be limited to £3,600 each year, effectively ending them as a home for regular savings for high earners. A change to the calculation of chargeable gains could affect those taking part surrenders while non-UK resident. Only previous gains which were subject to UK tax will now be deductible from the chargeable gain on full surrender, when back in the UK.
