UK Autumn Statement 2016: inheritance tax and business property relief


In the 2016 Autumn Statement, The Chancellor announced that reforms, originally proposed in Summer Budget 2015, to inheritance tax and business investment relief for non-UK domiciled individuals will come into effect from 6 April 2017. The draft legislation is expected to be published on 5 December.

The reforms cover the following areas:

  1. Inheritance tax on UK residential property;
  2. Business Investment Relief; and
  3. Deemed domicile status.

The Government has previously consulted on these changes, first in September 2015 and subsequently in August 2016. There is no indication that the legislation implementing these reforms will be materially different to that published during the consultation process.

Inheritance tax on UK residential property

From 6 April 2017, non-domiciled individuals who hold UK residential property within an overseas vehicle will be within the charge to inheritance tax.

In order to implement these reforms, the definition of "excluded property" will be amended so that shares in offshore close companies will not be excluded from inheritance tax where the shares derive their value directly or indirectly from UK residential property.

Non-domiciled individuals who hold property through a partnership or a trust settled by a non-UK individual will be similarly affected. However, the legislation will not apply to diversely-held companies.

As the charge only applies to residential property, specific rules will be introduced to deal with situations where the property consists of both residential and commercial elements or where the property has changed use over the individual's period of ownership.

Business Investment Relief

Due to concerns that non-domiciled individuals are discouraged from investing in UK businesses because they will be taxed when they bring money into the UK, the Chancellor has announced that changes to Business Investment Relief (BIR) will be introduced in Finance Bill 2017.

The Government sought views in its consultation in August 2016 on how BIR could be expanded to achieve further investment from non-domiciled individuals. However, it is not yet clear what exactly these reforms will consist of, with the Chancellor announcing that he will continue to look further at potential improvements to BIR to attract investment from non-domiciled individuals.

Deemed domicile status

Currently, individuals are deemed to UK-domiciled (and therefore subject to inheritance tax on their worldwide assets) if they have had such status in the previous three years or if they have been UK resident in at least 17 of the previous 20 tax years. These rules will be modified, so that individuals who either:

  • have been resident in the UK for 15 of the last 20 tax years; or
  • were born in and are currently resident in the UK but have a non-UK domicile

will be deemed to be UK-domiciled and so subject to inheritance tax on their worldwide assets.