Fiscal Policy & Economic Backdrop
Winter 2017

Draft legislation for Inheritance Tax and residential property has been published. From April 2017, holding UK residential property in non-UK companies, known as ‘enveloping’, will no longer have tax advantages and will become transparent. Such properties will be liable for inheritance tax. Non-doms who hold property in this way may be advised to ‘de-envelope’ the company which holds the property and arrange instead for family members to own the property directly. The concern is that this ‘de-enveloping’ process may result in large capital gains and stamp duty land taxes.

The government has decided to scrap a previous proposal to restrict the deductibility of loans for IHT purposes when they come from a connected person. It is still unclear however, how any of these tax charges will be enforced.

At over 7,300, the FTSE 100 reached an all-time high at the start of 2017 before falling back slightly following the Prime Minister’s announcement that the UK will leave the single market. The FTSE 100 is currently over 20% higher than in the immediate post-Brexit period. Across the UK labour market, employment remains high with average weekly wages currently rising faster than inflation which increased to 1.6% in December, its highest level in over two years. While the government has launched a major new industry strategy aimed to support businesses in the post-Brexit economy, financial institutions are warning of job losses from the city.