Inheritance tax
A transferable main residence relief will be introduced in addition to the existing nil rate band of £325,000 (which remains frozen until 2021). It starts at £100,000 per person in 2017 and increases by £25,000 per year until reaching £175,000 in 2020/2021. At that point it creates an effective £500,000 threshold for individuals, provided the property passes to a direct descendent.
Any unused residence allowance will be transferred to the surviving spouse or civil partner, making an effective £1m inheritance tax threshold for a couple. Where the net estate exceeds £2m, the main home relief is tapered away.
This extra exemption applies to a property outside the UK provided it has been the main home of the deceased at some point.
Changes to domicile rules from April 2017
The permanent non-UK domicile status will be abolished. Anyone who has lived in the UK for 15 of the past 20 years can no longer claim the remittance basis of taxation.
Currently, UK nationals leaving the UK to live abroad permanently are deemed domiciled in the UK (so liable to inheritance tax on worldwide assets) for at least three years. This will increase to five years. If they return to the UK, their domicile of origin immediately reverts, under all circumstances. Further consultation will take place before this becomes law.
This will affect individuals with excluded property trusts, since they will no longer have excluded property status on their return to the UK. Anyone who may move back to UK needs to review their tax planning in advance.
UK property owned by non-UK domiciles will become subject to UK inheritance tax even if held indirectly through opaque structures like non-UK companies or partnerships, or excluded property trusts. This proposal will be subject to consultation.
Personal tax
The personal allowances will increase to £11,000 from April 2016/17, and the 40% tax rate will apply for incomes over £43,000. The 10% dividend tax credit will be replaced by a new £5,000 tax-free allowance on dividend income.
There are some changes affecting rental income, and tax relief for pension contributions will be further limited.
Anyone who may be affected by any of these changes should seek personalised expert advice. Remember you also need to consider your tax and estate planning in Portugal.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Gavin Scott, Senior Partner, Blevins Franks
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