An attack on non-doms: IHT extension for UK residential property owned offshore


The Chancellor announced in the recent summer budget that the Government intends to bring all UK residential property held directly or indirectly by non-doms into the scope of UK Inheritance Tax, and this would include such property owned through an indirect structure such as an offshore company or trust.  One reason holding UK residential properties in offshore companies has long been attractive to non-doms is that shares in the offshore company could be an excluded asset for Inheritance Tax and not taxable on the non-dom’s death.

The proposed changes build on existing measures introduced to discourage ownership of UK residential properties through companies.  In March 2012 the Government introduced a 15% Stamp Duty Land Tax (SDLT) on corporate purchases of residential property (with some exemptions) where the purchase price was more than £2 million (the threshold was subsequently lowered to £500,000 with effect from March 2014) .  In April 2013 Annual Tax on Enveloped Dwellings (ATED) came into effect to tax UK residential properties held through corporate structures and worth more than £2 million.  At the same time the Government introduced a new Capital Gains Tax on disposals of those properties subject to ATED.   From 1 April 2015 the ATED charge has been extended to residential properties valued at more than £1 million and will be extended further to residential properties valued at more than £500,000 from 1 April 2016.  Reliefs from ATED have been available for some companies, with one of the most significant exemptions applying where the residential property was acquired as part of a property rental business.

The proposed Inheritance Tax extension announced by the Chancellor on top of the ATED changes may lead to an increase in non-doms taking properties out of corporate structures and putting them into personal ownership, known as ‘de-enveloping’.

Whilst de-enveloping may now be more attractive, there are likely to be Capital Gains Tax (and potentially other tax) issues in taking the property out of the corporate structure.

Capital Gains Tax implications

Where a property which is subject to ATED is sold or transferred out of the company it may be subject to ATED-related CGT at 28%. ATED-related CGT only applies to a gain arising on the disposal based on the number of days the property was subject to ATED as a proportion of the relevant ownership period (from 6 April 2013 to the date of disposal).

To the extent that any gain by the offshore company is not taxed to ATED-related CGT it may be subject to Non-Resident Capital Gains Tax attributable to any chargeable gain since 6 April 2015.

Growth in the value of the property prior to the introduction of ATED-related CGT/Non-Resident Capital Gains Tax may also be taxable in certain circumstances as a result of pre-existing UK tax legislation relating to offshore structures (although there are sometimes steps that can be taken to mitigate such charges).

Stamp Duty Land Tax

If the property is de-enveloped, and the property is the only asset and there are no liabilities other than the share capital, HMRC has said in its recent guidance that no SDLT will be charged.

However where the property is subject to a loan, depending on the precise circumstances there may be Stamp Duty implications if the shareholder takes on the burden of the loan – as this can be deemed to be consideration on which Stamp Duty is charged.

Other implications

Aside from the tax consequences in the jurisdiction of the company, the UK has wide anti-avoidance legislation which may lead to significant and perhaps unforeseen tax consequences on the transfer out of the company.  The tax implications of de-enveloping should be investigated carefully and professional advice obtained in each case.

Any de-enveloping will generally rely on the co-operation of agents in the jurisdiction where the offshore company is based and may itself take many weeks where it involves the liquidation of the company.  For some non-doms keeping a property enveloped and paying the ATED charge annually may still be more attractive than dealing with the winding up of the offshore company and triggering a disposal when de-enveloping.

For further information, please contact Helena Luckhurst, Partner, Fladgate LLP ( or Matthew Bennett, Partner, Fladgate LLP (


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