Inheritance tax extended to UK properties held through offshore opaque entities

The Budget has introduced a change to the inheritance tax (IHT) treatment of UK residential property owned by opaque non-UK structures, most commonly companies. This change, therefore, potentially affects individuals and structures with no other connection to the UK.

Individuals who are domiciled in the UK are subject to IHT on their worldwide assets, no matter where they are resident. Individuals who are neither domiciled nor deemed domiciled for IHT purposes, and trusts settled by such individuals, are also subject to IHT, but only on assets they own directly in the UK. Foreign assets owned by non-doms and such trusts are excluded from the scope of IHT – such assets are referred to as excluded property.

From April 2017, UK residential property held indirectly by non-doms will be brought into charge to IHT, i.e. property held through offshore companies or other opaque entities by an individual or a trust.
The use to which the property is put is irrelevant so, for example, let property will fall within the charge.

A consultation on the changes will be published in the autumn, and the new rules will form part of the Finance Bill 2017 and apply from 6 April 2017.

IHT will apply (at varying rates) on a chargeable event, which would include:
  • the death of an individual holding the company shares no matter where they are resident;
  • the gift of the company shares into trust;
  • the ten year anniversary of the trust;
  • distribution of the company shares out of trust;the death within seven years of someone who makes a gift of the shares to an individual.
It will not be possible to avoid this charge by giving away the shares in the property owning company whilst still living in the property rent free.


The aim is to extend IHT to UK residential properties in the same way that capital gains tax was extended to similar property held by non UK residents from 6 April 2015, and relying on many of the same definitions and concepts.

The charge will be on the value of the property net of any (presumably third party) mortgage used to purchase the property.

The spouse exemption will still apply where it was relevant, i.e. on a gift of company shares from one spouse to another, or a transfer on death.

There is some mention of consideration being given as part of the consultation to the costs associated with de-enveloping so there may be some movement on the tax charges that would arise on winding up a trust/company structure.

What next
Individuals, offshore company directors and offshore trustees need to start identifying affected structures and properties.

Once the consultation is completed and there is more certainty, the costs of de-enveloping can be considered to determine whether it is worthwhile.

Other mitigation of the IHT charges could be considered, e.g. insurance.

Wills should also be reviewed.

If you have any questions please contact you usual private client tax adviser.