UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors
The changes announced this week, due to take effect as of the new UK tax year of 6 April 2017, adversely affect Cypriots and foreign nationals who own property in the United Kingdom (UK).
As of 6 April 2017, Cypriot and other foreign investors who own property in the UK, whether directly or indirectly through offshore companies and other vehicles, will have to pay Inheritance Tax at the rate of 40%.
Until now, Cypriots and other foreign nationals who owned property in the UK through offshore vehicles were exempt from paying the hefty Inheritance Tax imposed by the UK Government.
Inheritance Tax is a tax on the property, money and possessions of an individual who has died. The current rate of Inheritance Tax levied is 40% charged on part of the estate valued above £325,000. If an individual’s estate is worth less than £325,000 after death or if the estate is left to the spouse or civil partner or a charity as opposed to offspring’s, then there is no Inheritance Tax to be paid.
In a further blow to property investors, it was also announced that as of April 2017, investors with buy-to-let mortgages will not be able to claim relief from their tax liability on the full amount of mortgage interest paid. Currently, the full amount of mortgage interest paid is off-set from the tax liability. However, this is set to change as of April 2017 with the relief going from 100% to zero by April 2020 and all landlords with buy-to-let mortgages will have to pay tax on the full amount received less a tax relief fixed at 20%.
One way to beat this new tax hike is to restructure your property ownership and own property via a Company. The Government has also announced plans to reduce the corporate tax rate from 19% to 17% by 2020, just as the new buy-to-let changes will take effect.
The Chancellor also announced changes on the domicile status of an individual, whereby as of April 2017 a non-UK domiciled individual will be considered as domicile if they have been UK resident for 15 of the last 20 years.
In light of these changes recently announced as well as the impending ‘Brexit’, if you think these changes may affect you, please contact one of our expert advisers who can go through them with you and explore ways to mitigate the setbacks.