IHT ON UK RESIDENTIAL PROPERTY – A BRIEF UPDATE
We’ve been watching with interest to see the outcome of the discussion between HMRC and the collective of professional bodies who questioned HMRC’s interpretation of the 2015 legislation around changes to inheritance tax charges on UK residential property held through offshore structures.
To summarise, the industry’s main area of concern is around what will be treated as “collateral”.
According to the original technical briefing in 2015, inheritance tax would be paid on the value of the UK residential property less any borrowing taken out to purchase the property. The concern is that the effect of the proposed provisions relating to collateral could, in substance, deny a deduction for bank borrowing. In addition, the latest responses from HMRC seem to broaden the definition of collateral such that assets previously considered excluded property could be pulled within the scope of UK IHT on the basis that banks have recourse to those assets in the event of a default.
This could have financially disastrous outcomes for some clients especially if their health is such that they wouldn’t be able to obtain any more life insurance cover. There are more broader considerations in terms of how this approach will change the behaviour of lenders and activity in the UK residential property market.
Following answers from HMRC, updated guidance was issued by those professional bodies concerned on 16 May 2019. However, still not entirely satisfied with HMRC’s stance on all issues, these professional bodies have requested further discussion. So no resolution just yet!
Given the complex nature of this legislation we would urge all the following who purchased and/or are planning to purchase UK residential property with bank borrowing to get in touch with their advisers to check how they may be impacted:
- non-UK residents and non-UK domicilaries;
- UK resident, non-UK domiciliaries;
- offshore trustees of trusts that own UK residential property;
- offshore trustees of trusts that hold an interest in an offshore structure which derives its value from UK residential property, and
- Owners of offshore structures which derive their value from UK residential property.
If you have any clients who might be affected, we can help by reviewing the life cover they have in place, for example, to help them avoid any potential additional IHT burden. Where clients impacted require additional life insurance, we can provide an indication of the extra costs and/or rebroke the existing cover if a more suitable and efficient solution exists in the market.
To discuss, please call 0207 633 2222 or email [email protected]
Other Insights
Introduction of caps on Agricultural Property Relief (APR) and Business Property Relief (BPR)
The upcoming introduction of caps on Agricultural Property Relief (APR) and Business Property Relief (BPR) in April 2026 is likely to generate significant tax planning activity, particularly around the gifting of agricultural and business assets. [...]
‘Outsourcing protection advice: Should you, or shouldn’t you?’ by Paula Steele published in Protection Reporter
In the ever-evolving landscape of protection advice in the UK, the decision to outsource protection advice is becoming an increasingly relevant topic for financial advisers and firms. Protection products, such as Life Insurance, Critical Illness [...]
‘Opportunities for the life insurance industry from Budget proposals’ by Paula Steele published in Cover Magazine
Paula Steele, director, John Lamb Hill Oldridge, discusses how the Autumn Budget creates a need for protection for clients impacted by new Inheritance Tax (IHT) restrictions. The Autumn Budget on 30 October confirmed the changes [...]
