I11.718 Lending to fund UK real estate by foreign domiciliary
IHT is charged on the worldwide assets of someone who is domiciled in the UK, and on the UK assets of someone who is domiciled abroad. Similarly, property situated abroad and held in a trust that was set up by someone who was domiciled abroad is excluded from charge, whereas UK assets owned by such a trust are subject to IHT.
Foreign domiciled individuals and the trusts created by them may therefore consider using borrowing when acquiring UK real estate, particularly where residential property will be occupied by the individual or their family. Borrowing is now more likely because the alternative strategy to mitigate IHT by property ownership through a corporate structure may trigger the new annual tax on enveloped dwellings and potentially also capital gains tax.
R is domiciled abroad and wishes to buy a valuable house in the UK for his occupation. He has a number of options:
'1. R buys the house in his own name, using his own cash resources to fund the purchase.
2. R settles cash from his own resources into a trust that purchases the house. R is a beneficiary of the trust. The reasons for using a trust may be partially non-tax related and may include a desire for confidentiality, to avoid complex probate procedures, or to provide an automatic succession plan on R's death.
3. R even if he could have funded the purchase from his existing resources, chooses to borrow from a bank
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