Should we wait to buy a share of a freehold?

Do you know when the law will change for buying a share of freehold (or extending leasehold) so that it is cheaper and more straightforward? It has been delayed for years. My parents are looking to buy a share of freehold. The current cost is £30,000, but if costs are soon to fall significantly, they will wait.

Colin Young, partner at law firm Boodle Hatfield, says leasehold reform in England and Wales has been on the cards for some considerable time now, but little actual progress has been made. (Almost all property in Scotland is freehold.)

Despite a wealth of consultation papers, ministerial statements and press releases promising change, actual reforms have been slow to materialise. The Leasehold Reform (Ground Rent) Act 2022, dealing with ground rent applicable on the grant of a new lease, is all we have had in recent years.

This year, the government did publish the long-awaited renter’s reform bill, aimed primarily at the short lease market. The King’s Speech recently outlined reforms to the leasehold system that could have a wider effect: extended leases will be granted following a formal claim and new leasehold houses will be banned. However, these reforms are not particularly groundbreaking and do not really have a sizeable effect on valuation.

Within the King’s Speech was a repeated commitment to make leasehold claims “cheaper and easier”. There has been little definitive meat on the bones of this commitment. The government has for some time stated its ambition to “abolish” marriage value — the difference in value before and after a lease is extended — but it is still unclear how it might introduce measures to do so.

This will probably be the last session of parliament before the next general election. How radical any reforms are in this current parliamentary session will almost certainly depend upon how much time is afforded to them. 

The risk for the government will be that any reforms may be subject to challenge from freeholders. Hence, they may choose to focus on new leases in the time available, rather than retrospective changes to existing leases. With the clock ticking, any changes are likely to be modest, lest they risk not getting through at all.

It is probably also worth bearing in mind that, regardless of when further detail is announced as to the likely reforms, one has to take into account the additional time involved in letting the Parliamentary process run its course before such reforms come into force.

That may very well take several months, not least because one is amending a complex area of law that has developed over more than half a century. We are, therefore, still in limbo. I am afraid that your parents will have to carry out some crystal ball gazing like the rest of us. While the King’s Speech reintroduced the intention to reform leaseholds, as yet there is no cogent timeline or plan of implementation.

As an American, will I have to pay UK inheritance tax?

I am a US citizen and wealthy business owner, currently looking to move to the UK to live near my daughter and her young family. If I settle here, would I be exposed to UK inheritance tax? Or would I be eligible for a foreign tax credit, since a large portion of my assets come from, and are taxed in, the US?

Are there any legal considerations I should take to mitigate the dual tax burden as a taxpaying US citizen?

Rachel Davison, partner from Taylor Wessing’s Private Wealth Group, says your UK tax position will be very different if, when you move to the UK, you plan on staying here permanently, compared with if your move is merely temporary and you plan to return to the US (or moving somewhere else) in the long term.

If your move is temporary, for the first 15 years of residence you will only be exposed to UK inheritance tax on your UK assets and UK residential property (even if held through a non-UK entity). This means you can claim the remittance basis, so your foreign income and gains are only taxed if you use them in the UK. This is likely to change if the Labour party comes to power following the next general election. 

If the move is permanent, you’ll be subject to worldwide taxation in the UK, as well as in the US, as soon as you become a UK tax resident. The US will give you credit against your US tax for any UK tax paid on the same income and gains. However, income and gains arising on some specialised products are taxed differently in the UK and the US and this mismatch can mean no tax credit is available.

For example, trusts may be taxed differently in the two countries. If you have set up a US revocable trust and are the sole trustee, you should review this before coming to the UK.

If you are thinking of gifting any assets to your daughter it would also be a good idea to do that before coming to the UK — unlike in the US, capital gains tax is payable if you gift assets to someone (subject to the availability of the remittance basis).

Even if your move is permanent, under the US/UK double tax treaty on estate tax, your worldwide assets (other than any UK real estate) will be subject only to US estate tax until you have been UK resident for seven years. After that, you will be subject to UK inheritance tax on your worldwide assets as well.

You will get credit in the UK for any US estate tax paid but be aware that the US estate tax exemption is far higher than the UK one (currently only £325,000) so your estate may suffer considerable inheritance tax before any tax credit is available.

The US/UK double tax treaties can offer very valuable and broad relief against exposure to UK taxes (inheritance, income and capital gains) depending on your specific circumstances, so it will certainly be worth checking the scope of protection those treaties may offer you.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.