Non UK domiciliaries are only subject to UK Inheritance Tax (IHT) on their UK assets. Foreign assets are treated as excluded property, which are outside the scope of UK IHT while they are neither domiciled nor deemed domiciled in the UK (broadly once they have been resident in the UK for more than 15 out of the previous 20 tax years, under the proposed new rules).
It has been common practice for non UK domiciliaries to acquire UK residential property via a non UK company of which they are the ultimate beneficial owners. In doing so the owner was viewed as holding a foreign asset (the shares), which represented excluded property. Furthermore, the shares may have been settled on to a trust prior to the settlor becoming deemed domiciled in the UK and thereby preserving excluded property status for the future.
The government announced that with effect from 6 April 2017 an IHT charge would be imposed on UK residential property no matter how it is held. However, as a result of the June 2017 general election, the new rules have been placed on hold. We expect these provisions will be reintroduced in due course but it is not yet clear whether they will apply from 6 April 2017 or 6 April 2018.
We will outline the new rules using scenarios on the basis that these will be introduced from 6 April 2017 in accordance with draft legislation.
