Residency changes bring an about turn on de-enveloping
How HMRC applies residency rules post April 2017 will have a big impact on the tax status of offshore trusts, according to Hazel Johnson of Moore Stephens. Johnson was speaking at the recent BL Guernsey Trusts Conference and outlined the new rules that trust practitioners need to be aware of for offshore trusts with onshore assets.
Johnson said it was clear by HMRC’s actions that it is not happy with UK residential property being held through trust structures. Under previous rules it was possible for non-doms or non-residents to hold their property in a company underlying a trust, ensuring it was not subject to IHT, however new rules assert that any property held in this way will now incur various charges.
In the case that the property is owned by an offshore company there will be IHT on the death of the owner at 40%, while in the case of an offshore trust there will be a 40% charge on death of the Settlor, but also a 6% charge every 10 years.
Trust practitioners should consider excluding the settlor from benefit of the property if possible, although this is complex and needs to be totally comprehensive to qualify. De-enveloping is still a possibility, however HMRC has made this more complicated and with taxes due on the sale of trust-based property, in some cases double, this is a much less attractive option than industry professionals originally hoped.