IMPORTANT UPDATE : Slimmed Down Finance Bill affects Non UK Domiciles and Inheritance Tax charges
The announcement of the general election has meant that the Finance Bill is being rushed through before Parliament is dissolved. To expedite the process a considerable number of measures have been dropped from the Bill. Specifically, all the changes relating to non UK domiciles and the Inheritance Tax (IHT) charges on UK residential property owned in trusts and companies have been placed on hold. It is expected that the measures will be reintroduced at the next opportunity, possibly as early as July, although they could be delayed until the Autumn budget.
Although this appears to be good news at first sight, commentators appear divided as to whether the commencement of the measures will be deferred until 5 April 2018 or could still apply from 5 April 2017 as originally planned. This uncertainty could have knock on consequences for the way in which finances are organised and the timing of future transactions.
Many people have taken steps to rearrange their affairs prior to 5 April 2017 and it is hopefully unlikely that there will be any unexpected tax charges as a result of these actions. However, the IHT position on chargeable events (which can include a 10th anniversary of a trust or the death of an individual) between now and any reintroduction is unknown. Similarly, it is not clear whether the transitional reliefs for cleansing of mixed accounts or rebasing for capital gains tax will now be available in the current 17/18 tax year or whether these too will be deferred. Unfortunately as the civil service is now in purdah pending the election we cannot hope for any guidance to be issued before mid June.
So what do we advise?
Where transactions were undertaken prior to 5 April 2017 these are unlikely to be disadvantageous but we would suggest careful thought should be given before taking any further action now. In particular we suggest that it may not be wise to do anything with the intention of taking advantage of the transitional reliefs for cleansing mixed accounts until it is established when and if the reliefs will apply. Where clients have moved to cash in contemplation of using this relief they may wish to review this decision.
On the IHT front, if an event occurs which might have caused a charge had the rules been enacted as expected, we will need to make sure that the reporting requirements and deadlines are checked by reference to the specific circumstances of each case. We will of course be following developments closely and if you have concerns on your individual position please do contact us directly.
A considerable number of other measures across all taxes have also been dropped from the curtailed Bill notably the provisions to bring in "Making Tax Digital" . Again, we will provide updates as and when further information is available. For now, if you are taking or contemplating any action subject to changes which had been expected to take effect through this Finance Bill, we would encourage you to discuss this with us before proceeding.
If you would like to discuss this further please contact a member from our Private Client team or your usual Mercer & Hole contact.
Date: 26th April, 2017
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