Few HNWIs will be directly affected by this change although it is likely to affect purchases where the “bank of mum and dad” is involved. The other changes of note focused on property.
One change was the freezing of indexation allowance on chargeable gains for corporation tax purposes from 1 January 2018.
Although it applies to all capital disposals by companies the change is likely to have the largest impact on property investment companies.
Two other changes
Two other changes are aimed at bringing the taxation of offshore investors in UK property into line with that of UK resident investors:
- The extension of corporation tax to property income and certain gains of non-UK residents.
- Taxing all gains made by non-residents on UK property. These are explained further below.
As far as UK tax resident HNWIs are concerned the Autumn Budget takeaway was a case of no news was good news. The tax reliefs on pensions were unchanged and the government maintained the ISA annual limits. Furthermore, income tax and capital gains tax rates remained the same.
The Finance Bill contained the legislation changing the SDLT rules and indexation rules announced in the Budget as well as further previously announced changes to the taxation of offshore trusts.
The new rules amend the existing anti tax avoidance measures in relation to offshore trusts. They set out that capital payments to non-resident beneficiaries from an offshore settlement cannot be taken into account for the purposes of matching gains to UK resident beneficiaries.
This is designed to eliminate a planning exercise known as washing out gains. There is also an onward gifts rule aimed at taxing gifts received by UK tax resident individuals from a non-UK resident beneficiary of an offshore trust where that beneficiary has received a distribution or benefit from the Trust.
Changes to the taxation of property for foreign investors
Investing in UK property has many upsides. Keen investors cite a strong track record of return on investment; confidence in the UK legal system which protects property rights; and few restrictions on who can own land in the UK.
Historically, these investors also had a simple and competitive tax regime.
For example in 2010, a purchaser of property in the UK would pay a top rate of SDLT of 4 per cent. Once purchased, an individual owning property directly would only need to consider UK income tax, if the property was rented, and inheritance tax if they died owning the property.
For non-resident companies, which unlike individuals never die, inheritance tax was not an issue and they paid basic rate income tax at 20 per cent on the rental profit with no tax UK payable when the property was sold.
