Budget spells out application of inheritance tax rules from 2017

George Osborne has used his 2016 budget to amend inheritance tax rules for non-doms with property held abroad indirectly now subject to the charge.

Budget documents state: “The government is undertaking a major reform to non‑domicile taxation. As announced at Summer Budget 2015, from April 2017 non-UK domiciled individuals (non-doms) will be deemed UK domiciled for all tax purposes after they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK and who have a UK domicile of origin will revert to their UK domiciled status for tax purposes whilst resident in the UK.

“The government will also legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017. As set out at Summer Budget 2015, non-doms who have a non-UK resident trust set up before becoming deemed domiciled in the UK will not be taxed on income and gains retained in the trust. The government will legislate all non-dom reforms in Finance Bill 2017.

“Budget 2016 confirms that non-doms who become deemed-domiciled in April 2017 can treat the cost base of their non-UK based assets as being the market value of that asset on 6 April 2017. Individuals who expect to become deemed UK domicile under the 15 out of 20 year rule will be subject to transitional provision with regards to offshore funds to provide certainty on how amounts remitted to the UK will be taxed. (Finance Bill 2017).”

The Budget goes on to talk about a number of technical amendments to the rules announced previously in the Finance Bill 2016 and the previous budget from 2015, including liberating undrawn pension fund from drawdown pensions from the charge, backdated to 2011.

Part 7.16 states: “Objects granted exemption from Estate Duty – The government will introduce a number of technical amendments to the current legislative framework for Estate Duty to ensure the legislation works in line with the publicly stated policy objective. (Finance Bill 2016)

“Undrawn pension funds in drawdown pensions – As announced at Spending Review and Autumn Statement 2015, the government will legislate to ensure a charge to inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all of the funds before death. This will be backdated to apply to deaths on or after 6 April 2011. (Finance Bill 2016)

“Residence nil-rate band – downsizing – As announced at Summer Budget 2015, the government will legislate to ensure that the residence nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets are passed on death to direct descendants. (Finance Bill 2016)

“Compensation and ex-gratia payments for victims of persecution during the World War II era – As announced at Spending Review and Autumn Statement 2015, the government will legislate Extra Statutory Concession F20, which gives an inheritance tax exemption in respect of certain compensation and ex-gratia payments for World War II claims. The legislation will also extend the scope of the existing concession to include a payment made under a recently created compensation scheme known as the Child Survivor Fund and allow the Treasury to add additional payments from particular schemes in the future. The legislation will apply to deaths on or after 1 January 2015. (Finance Bill 2016)”