In the press

Autumn Statement Tax Hike Makes Non-Dom Scrap Home Company – Roger Harding’s Article in New Model Adviser

Roger Harding's article was published in 'the New Model Advisor' on the 15th December 2015.

US resident Frederick provides a home for his UK-based family via a company but now wants to end that structure to avoid a huge tax liability under Autumn Statement changes.

Written by Roger Harding


Frederick, a wealthy US national and non-UK domiciled, lived in the UK with his wife who is UK resident and domiciled. They have two young children. In 2010 they separated and Frederick returned to live in the US.

The couple did not divorce, and Frederick agreed to provide a home for his wife and children until the youngest child leaves university in 12 years’ time. A property was purchased for £1.1 million in 2011.

Frederick did not want the UK property to form part of his estate in the event of his untimely death. He therefore set up a limited company in Guernsey to purchase the property, with company shares held by a Guernsey trust. He also loaned the trustees £1 million for upkeep. This structure makes the house an ‘excluded property’ for UK inheritance tax (IHT) purposes.

Concerned the trust would affect his US tax position, Frederick took up permanent tax residence in the Bahamas.

In early 2014 Frederick was worried about the level of trust fees and the Budget announcement that the annual tax on enveloped dwellings (ATED) threshold would be reduced to include properties worth £1 million from 1 April 2015. However, as the initial charge was to be £7,000 per annum for such properties, he was not too alarmed.


In the 2014 Autumn Statement, the chancellor announced an increase in ATED of 50% above inflation with effect from 1 April 2015. ATED of close to £11,000 per annum is now looming, which over the next 12 years amounts to a substantial tax burden.

Frederick wishes to ‘de-envelope’ by closing down the company and removing the trustees (and their fees) without upsetting the current maintenance order. He also wants to achieve this without incurring stamp duty land tax (SDLT).


Frederick can make himself sole trustee, although he should appoint another in case he dies, so the first problem is his potential exposure to UK IHT if the current ATED structure is unwound.

SDLT is also a concern as a transfer of the property ownership constitutes a chargeable land transaction. However, for a SDLT charge, the transfer also has to be ‘for consideration’. On the face of it, a simple transfer of the property out of the company without consideration would not give rise to SDLT.


What about the loan made to the trustees? The Finance Act 2003 states that where a ‘land transaction’ involves paying off a debt, the amount of debt shall be taken as the chargeable consideration for the transaction.

Furthermore, where a debt is secured on a land transaction and the rights/liabilities of the debt are changed in connection with that transaction, there is an assumption of that debt by the purchaser, the new trustees, which becomes a chargeable consideration for the transaction.

The loan stands at £1 million and, under the new rates of SDLT announced in the Autumn Statement, the potential SDLT payable for the assumption of that debt is therefore £43,750. The simplest way to prevent the loan being treated as consideration for the transfer is for the trustees to capitalise it in return for new shares in the existing company.

The company can be liquidated and the assets passed to shareholders without SDLT. This is because the transfer of property in the course of liquidation is not treated as a consideration, as there is no bargain or arrangement, between the shareholders and the company.


The liquidation of the company, free of SDLT, also means the property is not held by a ‘non-natural person’, which would be subject to ATED. So Frederick would avoid future ATED charges.

The property is no longer excluded property and liable to UK IHT. However, as long as Frederick remains married, the IHT spousal exemption will apply on transfers.

In his UK will, he could include a determinable life interest trust for his wife so that on his death the property passes to her initially, to benefit from the spousal exemption and be IHT free, before reverting to the children six months later. Providing his wife survives seven years, there should be no IHT payable by the children for the transferred property on her death either.

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Roger Harding

Gordon Dadds