Government looks to ‘shut down’ IHT advantages of offshore structures holding UK property

The consultation paper describes measures to ensure UK property is always chargeable to UK IHT regardless of how it is owned. The paper also includes some responses from the September 2015 consultation ‘Reforms to taxation of non-domiciles’ as well as some proposals for changes to Business Investment Relief.


Individuals who are non-domiciled in the UK currently enjoy a significant advantage over other domiciled individuals for IHT purposes. UK domiciled individuals are liable to IHT on their worldwide property. However, those who are non-UK domiciled are only liable on the property which is situated in the UK.

Any residential property in the UK owned by a non-domiciled individual directly will be within the charge of IHT. However, it is standard practice for such individuals to hold UK residential properties through an overseas company or similar vehicle. Where this is the case, the property of the individual consists of overseas shares which will be situated outside the UK and are therefore excluded from IHT. This is known as ‘enveloping’ the UK property and the effect is that the property is taken outside the scope of tax.

Proposed changes

The government proposes to remove UK residential properties owned indirectly through offshore structures from the current definitions of excluded property currently provided within the Inheritance Act (IHTA) 1984. The effect will be that such UK residential properties will no longer be excluded from the charge to IHT. This will apply whether the overseas structure is owned by an individual or a trust.

The Government has confirmed that the change will be effective for all chargeable events which take place after 5 April 2017.

What next

The consultation closes on 21 October 2016 with legislation to be included within 2017 Finance Act. Full details of the consultation can be found here.

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