Brexit and a new tax year in the UK – what will happen in 2017?

Yesterday, the UK’s exit from the EU began and this process is expected to continue for two years. There has been a great deal of speculation as to whether Brexit will impact UK tax legislation, but the changes as seen in the budget, which was presented two weeks ago, were not extensive.

The budget contained the following new regulations, primarily regarding inheritance tax, which will have a major impact on global clients with a relationship to the UK and these will come into effect from the UK tax year starting on 6 April 2017.

1. Individuals who are treated as ”non-domiciled” according to UK domestic legislation but who have lived in the UK during a minimum of 15 of the last 20 UK tax years will now be granted a new tax status ”deemed domiciled”. This tax status will apply to all UK taxes and these individuals will be subject to UK tax including inheritance tax on their total wealth, at the prevailing tax rate. Inheritance tax is currently taxed at 40 percent. It is possible to change the ”base years” for foreign assets to the value they have on 5 April 2017. If an individual has transferred assets to an offshore trust prior to being granted a new tax status in the UK, the assets in the trust will continue to be exempt from inheritance tax.
2. Inheritance tax will be levied now on all UK residential housing. It makes no difference if the assets are owned by an individual, company or trust. Tax liability on inheritance will always arise in the case of a death. Neither will there be any difference if one has a non-domiciled tax status in the UK – inheritance tax is still to be paid in this context.
3. New regulations will be introduced in the UK to limit the amount which can be claimed as a deduction against rental income on UK housing for financial costs (interest expenses, interest on loans, fees in conjunction with loans). The new rules will begin to be phased in from 6 April 2017. For 2017/18, a total of 75 percent of financial expenses can be deducted. Deduction of the remaining 25 percent of total expenses is subject to a limitation of 20 percent.
4. The tax exempt basic deduction for individuals incurring UK tax liability increased to GBP 11,500. This tax relief is available for individuals with UK passports, EEA citizens and individuals working for the UK government.

Seminar on 5 April in Uppsala

On 5 April 2017, PwC will hold a seminar in Uppsala regarding Brexit in which three of our colleagues from PwC UK will participate. The seminar will provide you with the possibility to have an insight into the next steps in the Brexit process and how they can impact international companies.

The seminar will be held in English.