Under the UK's tax code, individuals who, very broadly speaking, are born outside the UK, live here but intend to leave at some point (collectively known as 'non-doms') are given special tax treatment, partly to encourage internationally mobile individuals to invest in UK Plc. London, in particular, has been viewed for decades by wealthy foreigners as an attractive place to live and spend money and this has helped the upper end of the London residential market to buck the downward trend, even in the worst throes of the recession. However, the favourable tax treatment of non-doms has been gradually eroded as fiscal belts tighten. Budget 2012 continues that trend.

It's not all bad: non-doms can now bring in foreign income and gains into the UK to invest in companies without a tax charge and at last, the derisory inheritance tax spouse exemption (£55,000) for property passing from Anglo-Welsh domiciled spouses to non-domiciled spouses is being reconsidered - it might increase to the threshold of the current nil rate band. And there is a proposal that non-dom spouses should be able to elect to be treated as UK domiciled for inheritance tax purposes so as to benefit from the full spouse exemption. More detail is needed before we can advise whether that will ever be a sensible option.

As previously announced, the remittance basis charge has gone up to £50,000 for individuals who have been resident in the UK for the previous 14 years.

But the shock news for non-doms is that inheritance tax efficient corporate structures to hold valuable UK residential property will no longer be viable if current proposals get the green light.

In addition to increasing the stamp duty land tax rate to 7% on residential properties over £2 million, we now have a new top rate of 15% SDLT to apply to purchases of residential property over £2 million by non-natural persons.  However, the real sting is in the fact that the Government has announced it would consider an annual SDLT charge from 2013 where such high value residential properties are held by non-natural persons and additionally charging capital gains tax on disposal of such properties where they are held by non-UK resident and non-natural persons. 

Confusingly, the Government has presented these measures as being an attempt to prevent the avoidance of SDLT.  This is simply not the case, but no matter the perceived evil it is aimed at, it will affect many non-doms who hold valuable homes in the UK through companies for a variety of reasons, ranging from privacy to inheritance tax planning.

Particularly invidious is the impact on those who have held residential properties through such structures for a very long time and are now suddenly faced with potentially punitive charges.  Understandably, such individuals are anxious but the best course of action is to wait and see the final form of the proposed measures once the consultations come to an end.

For those non-doms still brave enough to consider investing in UK Plc and looking to buy high end UK residential property, ownership through a company is not the best option at the moment but there are other possibilities open to them.  We will be keeping a very close eye on developments in order to be able to advise people who find themselves needing to reassess how their property is owned over the coming months.