(MENAFN - Muscat Daily) Muscat- Properties in the UK, particularly London, have always been popular with investors from the Gulf including Oman. Foreign investors got preferential tax benefits that added to the attraction of owning a property there. It's no more the case now after the imposition of 40 per cent inheritance tax rule on such properties.
According to the British government, the Finance (No 2) Act 2017 has made some changes relating to the ownership of residential property. Before April 6, 2017, residential properties in the UK owned by non-UK domiciled individuals through an offshore structure - a company incorporated outside of the UK - was not subject to inheritance tax.
As the shares of the company were not located in the UK they were considered to be excluded property and not within the scope (unless the individual was deemed domiciled in the UK through years of UK residence).
The new rule (from April 6, 2017) means that shares of an offshore company are no longer excluded property for inheritance tax, as their market value are attributable to a UK residential property. While the rule brings foreign assets and the value of that property within the scope of inheritance tax, it will apply in the same way for non-UK domiciled Omanis as they do for other nationalities.
Speaking toMuscat Daily
, a British Embassy spokesperson in Muscat said, 'On April 6, 2017, new rule came into effect relating to the ownership of UK residential property. The new rule applies uniformly to any foreign investor not domiciled in the UK.'
The scope of inheritance tax is not confined to only death, it includes charges on lifetime transfers and on property held in, or leaving, certain trusts. Upon an individual's death, there may be inheritance tax to pay.
The personal representatives of the individual's estate must fill the relevant inheritance tax forms, disclosing their interest in the UK residential property and pay any inheritance tax if it is due.
Tim Searle, chairman of Globaleye, a company that provides financial planning solutions to over 15,000 clients worldwide, said, any foreign owner of a UK residential property is now liable to 40 per cent tax on death based on the value at that time and irrespective of structure.
'After the global financial crisis and the Brexit negotiations, the UK government sought to increase taxes on property held through structures by introducing a raft of anti-avoidance measures. The UK government can look through these structures to the UBO (ultimate beneficial owner) and levy this tax accordingly.
'So, structures typically offered through lawyers, bankers and fiduciary professionals to foreign investors are no longer effective, which means on death, the investor is liable for this 40 per cent charge. This tax is based on the value of the property at time of death and must be paid to the UK taxman before the asset can be passed on to the family/estate,' he toldMuscat Daily
'So, selling the property to pay the tax bill is not an option. If we consider who and how many investors this will affect, the statistics is quite staggering and may give an insight as to why the market values, particularly in London, have softened of late. A recent report showed that close to half of all UK properties owned by overseas structures are in London.'
On options available for owners who are now faced with this reality, Searle said, 'An overview in conjunction with professional advisors can yield a cost-effective solution to protect your property. This is a wake-up call to all foreign owners and it would appear that the tax penny is only starting to drop now. Many advisory companies in this region are either unaware or have ignored this change to the detriment of clients. Certainly, realty companies selling UK property do not highlight this point to prospective buyers that they are exposing themselves to a 40 per cent inheritance tax for fear of losing the sale.'