Non resident, non Domiciled purchase of UK property
Question: I am British but have been non-resident and non-domiciled for the last 20 years. I also have a US passport and I live in the US with my American husband. We wish to purchase an investment property in London and have been told we cannot do it in the name of our US family trust. What is the best way to purchase UK property in order to minimize our exposure to UK IHT or CGT. Should we buy it as ourselves individually, via another trust, Channel Islands account? Thank you. Answer: In terms of UK capital gains tax whether you purchase in your own names, via an offshore trust or via an offshore company there would be no capital gains tax on a disposal. This is because non UK residents are exempt from UK CGT on investment property, and provided the trust or company was established as a non resident (eg non UK resident trustees or the company was controlled from offshore) there should be no CGT charge. Therefore the key issue would be likely to be the IHT position. You should firstly consider your domicile position. There are lots of articles on this site relating to domicile status, however it's likely that you would have a strong case for non UK domicile status if you can clearly show an intention to live permanently in the US. If you are a non UK domiciliary you/your husband would be exempt from UK IHT on overseas assets but within the scope of IHT on UK assets. You would however have your nil rate bands to offset. This is currently £325K each assuming no previous gifts of UK assets. Therefore if the UK investment property was your only UK asset you could hold this jointly and provided it was worth less than £650K there would be no UK IHT charge. Note that it is the net value (after any mortgage) that is taken into account for IHT purposes. Another option could be to hold via an offshore company. In this case you would own shares in the offshore company -- not the actual property (which would be owned by the company). Therefore the property value would be excluded from your UK estates for UK inheritance tax purposes. Finally you could use an offshore trust. Although the trust could be non resident holding UK property would mean it would not be an excluded property trust for IHT purposes and therefore UK IHT would need to be considered. In particular the potential tax charges every 10 years and on the extraction of the funds/property. If you were to use a trust it would be usual to hold via an offshore company (with the trustees owning the shares in the offshore company which then owned the property). You would also need to consider the income tax charge on rental income. In terms of ownership the best options would be to own personally (depending on the expected value and other UK assets) or via an offshore company. This assumes that you are a non UK domiciliary. You should ensure that you take detailed US tax advice and also consider the impact of the UK-US estate tax treaty.
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