Major changes to the tax system could impact divorce settlements for wealthy individuals

The 2015 Summer Budget brought substantial changes to the taxation of non-UK domiciled individuals. As so many of those living in the UK now, and London in particular, came to the UK from overseas, this may have a significant impact on you or your family’s finances.

From April 2017, non-UK domiciled taxpayers who have been resident in the UK for more than 15 out of the past 20 tax years will no longer be able to access the remittance basis of taxation, and will therefore be taxed on their worldwide income and gains if they remain UK resident. Given the lower tax regimes available overseas of many non-UK domiciled taxpayers are likely to be paying substantially more in tax as is the aim of the UK government.

Whilst the Government extended the relief for taxpayers to minimise the UK inheritance tax charged on family homes to £1m, at the same time it also announced that UK residential property held by non-UK company and partnership vehicles would be subject to inheritance tax. Therefore all UK residential property will fall within the charge to UK inheritance tax, even property held by a non-UK company or partnership which had been a route used by wealthy individuals to reduce their tax liabilities. This change could affect UK domiciled individuals, non-UK domiciled individuals and the trustees of excluded property trusts, amongst others.

Anyone impacted by these changes will need to review their tax affairs in order to consider what action they should take in advance of 6 April 2017. Transitional rules may apply, bringing forward the effective date of change. For those who are in the process of negotiating a divorce settlement where these issues arise they may now need to substantially review their positions given the significant impact on both capital and income that these changes will bring.

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