UK Residential Property Print

IHT is chargeable on UK situs assets on the death of the individual owner wherever that owner is resident or domiciled. This had been fairly simple to circumvent as the non-domiciliary could either hold the asset via a corporate structure, or via a company held by a trust provided the structure was in place prior to the individual becoming deemed domiciled in the UK. From 6 April 2017 this no longer avoids IHT on UK residential property as the law has been changed so that any corporate structure holding UK residential property where the shares in the company are owned directly by the individual are treated as being transparent for IHT purposes. This affects all non- domiciles, including those who have never been resident in the UK.

On the death of the individual after 5 April 2017 his estate will be liable to IHT on any UK residential property held via companies in the same way as if the property had been held directly by the deceased individual. This will not affect any other UK situs assets, or overseas assets held within the company.

Where the UK residential property is held via a trust/underlying company structure, the trust comes within the 10-year charging provisions in relation to the UK residential property. The charge is equivalent to approximately 6% of the value of the trust at the 10th anniversary after it was created, and every 10th anniversary thereafter. Where the trust first comes within these provisions from 6 April 2017 the 10-year charge is apportioned between the chargeable and non-chargeable periods.

Example:

Franz created an offshore trust on 5 April 2012. On 30 August 2016 the trust acquired a UK residential property via its underlying Jersey company at a cost of £2m. In April 2022 the property is worth £3m. Franz has made no chargeable gifts in the 7-year period prior to the creation of the trust. The first 10-year anniversary is 5 April 2022, and the IHT chargeable is calculated as follows:

Number of quarters from April 2012 to April 2017: 20

£
Value at April 2022 3,000,000
Less Nil-rate band 325,000
2,675,00
Chargeable at lifetime rate 20% 535,000
Settlement rate 30% 160,500
Less proportion up to April 2017

(Expressed in quarters)

 

20/40

 

80,250

IHT Payable on 10-year charge 80,250

A further IHT exit charge of up to 6% is likely to arise if the trust is wound-up and the assets distributed to the beneficiaries. This charge is also apportioned based on the number of quarters that have elapsed since the settlement was created, or the last 10- year charge arose, up to the date of distribution of the assets, divided by 40.

If the UK residential property is either sold or distributed to a beneficiary before the first 10-year charge following 6 April 2017 arises, then there is no exit charge if there has not previously been a 10-year charge. In the above example the first 10-year charge is on 5 April 2022, so if the UK residential property is disposed of prior to that date there is no IHT charge.

Start a Conversation

How can we help you? Please complete all fields