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Friday, 18 December 2015

For those from the UK

Inheritance Tax

In July’s Summer 2015 budget George Osborne announced plans to allow parents or grandparents to pass on homes worth up to £1,000,000 to direct descendants – children, step-children and grandchildren. A new “main residence” band will be introduced in 2017 at £100,000, which will increase by £25,000 until 2020 when it will be capped at £175,000. At that point an individual will have £325,000 inheritance tax threshold plus £175,000 “main residence” threshold, creating £500,000 relief per individual or £1,000,000 for a couple.

However, on properties worth £2,000,000 or more, homeowners will lose £1 of the allowance for every £2 of value above £2,000,000 – so, couples with houses worth over £2,350,000 will get no additional allowance.

Inheritance Tax is payable at 40% on amounts above the threshold, so people with sizeable estates should consider planning to mitigate this. One simple and relatively inexpensive method is to take out a life insurance policy in the amount of the estimated IHT liability.
UK property of non-domiciled citizens is also subject to IHT so if the portfolios are above the thresholds then it is worth considering mitigation strategies.

Capital Gains Tax
CGT is now charged on disposals of UK property by non-residents – before 6 April 2015 this was not the case. The charge relates to Non Resident Capital Gains Tag (NRCGT) gains made by individuals, trustees and closely held non-resident companies and funds that are not widely marketed.

Principal Private Residence (PPR) relief is available in certain circumstances, but the rules have changed, applicable both to non-UK residents and UK residents in relation to property overseas. For PPR to be available in a tax year:
  1. The person making the disposal was tax resident in the country where the property was located and
  2. The person spent at least 90 days in the property in that tax year. If the person has more than one property in a country where they were not tax resident, they may aggregate the number of days spent in any of those properties in the tax year to pass the day count test. One of the properties may then be nominates as their PPR.
Tax is chargeable on individuals at either 18% or 28% according to their status as basic or higher rate taxpayers.

Income Tax
It was also announced in the summer budget that tax relief on mortgage interest payments will eventually be restricted to the basic rate of income tax, currently 20%. The move will be phased in over a three year period from April 2017. Under the withdrawal of interest relief, in 2017-18 landlords will only be able to apply the existing relief rules to 75% of their finance costs with the remaining 25% using the basic rate reduction. The following three years will see the proportion change to 50:50, and then 25:75, before the basic rate applies in full from 2020-21. Basic rate taxpayers will be unaffected.

Changes were also announced to the automatic deduction of 10% of gross rents for “wear and tear” – from April 2016 only actual repair costs incurred will be deductible.

Stamp Duty
On Wednesday, in his Spending Review and Autumn Statement, Chancellor George Osborne announced that landlords and second-home owners will pay an extra 3 % on each Stamp Duty band. Currently Stamp Duty is at 0% on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000 and 12% on any excess. All these rates are increased by 3% for landlords and second-home owners with the result that Stamp Duty will rise by £15,000 for the purchase of a £500,000 property. For a £250,000 property Stamp Duty will rise to £10,000 from £2,500.

The government is consulting on whether to allow investors who acquire more than 15 properties through a fund or company to avoid the increased Stamp Duty. It is understood that purchasers who complete after 1 April 2016 will pay Stamp Duty at the old rates but this is yet to be formally confirmed.


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