Case Study: Non UK dom with UK assets – UK IHT what happens?



  • Hiro is a 52 year old Japanese national (living in anywhere in the world)
  • He owns a property in London worth approximately £2 million.
  • It was originally an investment property, but he likes to be able to use it as and when he likes and as such doesn’t rent it out anymore.
  • Prior to the introduction of ATED it was held in a corporate vehicle, but this is no longer financially viable due to the annual charges
  • Even though Hiro isn’t British or live in the UK, he’s still got a UK IHT liability from his UK asset as its registered in his name £2,000,000 – £325,000 = £1,675,000 x 40% = £670,000 IHT bill!
  • What is ATED? = Annual Tax on Enveloped Dwellings
    • Currently applies to residential property Values of £2m or more but;
    • From 1st April 2015, this will extend to UK Residential Properties over £1m in value
    • From 1st April 2016, this will extend further to those over £500,000 in value.

 

ATED Charges

From April 2016 Charge
£500,000 – £1million £3,500
From April 2015 Charge
£1million – £2million £7,000
£2milion – £5million £15,400
£5million – £10million £35,900
£10million – £20million £71,850
£20million + £143,750

 

  • Plus CGT at 28% on sale
  • Hiro is concerned that should he die whilst still owning the UK property that his estate won’t be able to fund the IHT liability
  • He takes out an Asset Protection Plan to insure against his UK IHT Liability with £700k initial cover + 5% Premium indexation to cover increases
  • in property values .
  • He pays an initial monthly premium of £1000
  • Hiro and his two sisters are the Trustees, the trust is discretionary and Hiro and his two sisters can benefit.
  • Should Hiro die, his sisters can settle his UK estate costs but the plan can also be cashed in if no longer required.

Outcome

  • Hiro funds the policy for 15 years from his disposable income.
  • He then sells the UK property and cashes in the plan.
  • After 15 years the cash in value of the plan could be as much as  £267,000* which is more than the sum of the premiums paid. * based on 7% Growth