The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This guidance note describes the anti-avoidance provision introduced by Finance (No 2) Act 2017 which brings all UK residential property within the scope of IHT.
Property situated outside the UK which is owned by a non-UK domiciled person is outside the scope of IHT. Such property is designated as ‘excluded property’. See the Excluded property and situs of assets guidance note.
A person who is non-UK domiciled may limit his exposure to IHT on death by keeping some of his assets outside the UK (and outside any other jurisdiction which imposes a similar tax).
As a general principle, UK residential property should always be subject to IHT regardless of the domicile status of its owner because it is, by definition, situated in the UK. However, certain arrangements can be made which wrap up or ‘envelope’ property in overseas assets so that, effectively, the legal location (lex situs) of the underlying property is shifted offshore. A typical arrangement would be structured as follows:
a non-UK domiciled individual wishes to have a residential property in the UK for his personal use. Instead of buying the property himself, he settles a sum of money in a non-UK resident trust. The trustees subscribe for shares in an overseas company, which in turn uses the funds to purchase a property in the UK
the actual assets owned by the trustees are shares in a company registered overseas for which the lex situs is the foreign jurisdiction where the company is registered. Since the trust was created by a non-UK domiciled settlor, its non-UK assets (ie the foreign shares) are not subject to IHT
In this situation, the value of the overseas assets is attributable to the UK residential property that it owns. The provisions of IHTA 1984, Sch A1 (as introduced by F(No 2)A 2017) bring that value within the scope of IHT.
The avoidance strategy relies on the principle that property
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