Thursday, May 28, 2020

Non-Doms In Tax Firing Line, Warn Property Lawyers

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Lawyers are warning the newly elected UK government may focus on non-doms to raise more tax.

The target is likely to be real estate – and non-doms are urged to review their tax status to ready for changes, says Naomi Lawton, a senior associate at Memery Crystal LLP.

The firm argues taxing non-domicile residents in the UK remains at the head of the government’s policy list despite some radical changes during the last Parliament.

Lawton explains that tax status will differ for each non-dom, which makes financial planning difficult.

“Non-doms looking to buy homes or commercial property in the UK have a number of taxes to consider,” she said.

False savings

“Clients are happy to save stamp duty when they buy a property, but less happy when they realise that other taxes come into play while they own a property and when they dispose of it.”

Other factors also come into play, she said, like establishing residence status.

Unravelling stamp duty and the annual tax on enveloped dwellings (ATED) – homes owned by a company – is a major issue for many non-doms.

Stamp duty is charged against the value of a property on the day of purchase, with rates charged at different thresholds up to 4%, but although stamp duty when buying shares in a company owning homes pay is only 0.5% on the value of shares, ATED can be charged at a rate of up to 15%.

While owning the property, ATED is due each year – plus either income tax or corporation tax on rental income.

Corporate advantages

Then, on disposal of a property, capital gains tax (CGT) or enhanced ATED CGT are payable on the increase in value of the property.

Other complications that arise include inheritance tax – which is changes for UK property owners in France, Spain, Portugal and Italy from August 2017 under the European Union Succession Regulations.

“One of the most surprising conclusions when a tax analysis is carried out for non-doms is that holding UK real estate in an offshore company is still a reasonable option despite all the efforts of the government to discourage the practice,” said Lawton.

“Holding property in a company has tax and personal advantages, such as limited liability and privacy. These personal benefits can be just as attractive as the tax advantages.”

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