UK homes owned through offshore companies and IHT

Since 6 April 2017, Schedule A1 to the Inheritance Tax Act 1984 has stopped people who are outside the UK inheritance tax net from keeping UK homes out of it by owning them through an overseas company or partnership. Shares and partnership interests are not excluded property to the extent their value comes from UK residential property, and loans used to buy, maintain or improve such property, along with any collateral for those loans, are caught too. From 6 April 2026 the same rules also cover UK agricultural property.

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Why were offshore companies used to hold UK homes?

Inheritance tax applies to worldwide assets of people who are long term UK resident, but only to UK situated assets of everyone else. Property situated outside the UK and owned by someone who is not long term UK resident is excluded property, which is outside the charge altogether. Shares in a company incorporated in Jersey or the British Virgin Islands are situated outside the UK even if the company’s only asset is a London flat.

HMRC’s Inheritance Tax Manual at IHTM04311 explains that before 6 April 2017 this let non domiciled individuals and trustees avoid inheritance tax on UK homes by putting them inside an offshore company: the shares were foreign and therefore excluded. Before 6 April 2025 excluded property status depended on domicile; it now depends on long term residence. See excluded property and long term residence for those tests.

What does Schedule A1 actually do?

Paragraph 1 says property is not excluded property under section 6(1) or section 48ZA if, and to the extent that, paragraph 2 or 3 applies to it. Paragraph 2 applies to an interest in a close company or a partnership whose value is attributable, directly or through other close companies, partnerships or relevant loans, to relevant UK property.

The charge is on value, not on the whole holding. IHTM04311 stresses that only the part of the share or partnership value attributable to UK residential property, and from 6 April 2026 UK agricultural property, comes into charge. The rest of the company’s assets can still be excluded property.

What counts as a close company or partnership?

Paragraph 9 uses the corporation tax meaning of close company, applied as if the company were UK resident, and treats a participator’s rights, including rights to assets on a winding up, as their interest. Paragraph 10 covers ordinary partnerships, limited partnerships, LLPs and similar foreign entities. For the close company test itself, see close company rules.

Is there a de minimis?

Paragraph 2(3) ignores an interest worth less than 5% of all the interests in the company or partnership. Paragraph 2(4) adds the interests of connected persons before applying that test, so a family cannot avoid the rule by splitting shares into small parcels.

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Which properties are caught?

Paragraph 8 defines a UK residential property interest as an interest in UK real property that consists of or includes a dwelling, or an interest under a contract for an off plan purchase. Where a property is only partly a dwelling, the residential part is found on a just and reasonable basis. The meaning of dwelling is borrowed from the non resident capital gains tax rules in paragraphs 16B to 16H of Schedule 2 to the Finance Act 2019.

Finance Act 2026, Schedule 12, added UK agricultural property for times on or after 6 April 2026. IHTM04311 notes that a farmhouse was already caught as a dwelling, but farmland, farm buildings and cottages held through an overseas company are now within Schedule A1 too (IHTM04317).

How are company debts treated?

Paragraph 2(5) spreads a company’s liabilities rateably across all of its property, whatever they are secured on. IHTM04312 gives the example of a company whose borrowing is secured on its UK home: the borrowing still reduces every asset proportionately, so the UK home does not drop out of charge just because the mortgage is charged on it.

How are loans and collateral caught?

Paragraphs 3 and 4 deal with lenders. A relevant loan is one whose funds are used, directly or indirectly, by an individual, partnership or trustees to buy, maintain or improve relevant UK property, or to buy an interest in a company or partnership that does. The lender’s rights under a relevant loan are not excluded property, even if the debt is structured as a foreign asset. Money or assets given as security, collateral or guarantee for a relevant loan are also caught, up to the value of the loan.

IHTM04313 makes three practical points. First, a loan made to a company is not itself a relevant loan, but the lender is treated as a participator, so the company rules catch it instead. Second, where collateral is pledged, the amount in charge is the lower of the loan and the collateral. Third, when the property is sold the loan stops being a relevant loan (paragraph 4(4)), and a partial sale reduces it proportionately.

What happens after a sale or repayment?

Paragraph 5 stops a quick exit. If someone disposes of a caught company or partnership interest, or of a relevant loan, or is repaid a relevant loan, the proceeds and anything representing them are not excluded property for two years. The amount kept in charge cannot exceed the value at the time of the disposal or repayment.

IHTM04314 explains that this two year rule does not apply when the home itself is sold and the loan repaid, because the loan stops being relevant on the sale. It also confirms that where trustees of a relevant property trust hold the proceeds, there is no exit charge when the two years end (section 65(7D)).

How does this work in practice?

Illustration only. Ana is not long term UK resident. She owns all the shares in a Guernsey company that holds a London flat worth £1,500,000 and overseas investments worth £500,000, and owes a bank £400,000.

Ignoring any valuation discount, the shares are worth £1,600,000 (£2,000,000 of assets less the £400,000 debt).
Under paragraph 2(5) the debt is spread over all assets, so 75% of the share value (£1,500,000 out of £2,000,000) is attributable to the flat.
£1,200,000 of the shareholding is therefore within inheritance tax on Ana’s death or on a lifetime gift. The other £400,000 remains excluded property.

If Ana sold the shares and moved the cash offshore, the proceeds would stay in charge for two years. If the company instead sold the flat, the two year rule would not apply.

What about trusts, treaties and avoidance?

Where an offshore trust holds the company, the shares are relevant property and are exposed to ten year and exit charges to the extent Schedule A1 applies (IHTM04312). See the ten year charge.

Paragraph 7 overrides double taxation treaties where the other country charges no comparable tax on the transfer, or charges it at an effective rate of 0% other than through a relief or exemption (IHTM04315). Paragraph 6 is a targeted anti avoidance rule that ignores arrangements whose main purpose is to get around paragraph 1 or 5. IHTM04316 adds that the Inland Revenue charge under section 237 extends to the enveloped property itself, so HMRC can register a charge against the home even though a company owns it. For wider treaty points see double taxation relief for inheritance tax.

What mistakes come up?

Assuming foreign shares are always excluded property. Schedule A1 looks through the company to what gives the shares their value.
Deducting a mortgage only from the UK home. Debts are spread over all company assets.
Forgetting family lenders. A parent who lends a child money to buy a UK home has a relevant loan in their own estate, even if the loan is structured as a foreign asset (IHTM04313).
Treating sale proceeds as instantly excluded. The two year rule applies to sales of shares and repayments of loans.
Overlooking farmland held through overseas structures from 6 April 2026.

Enveloped homes may also face the Annual Tax on Enveloped Dwellings. For the wider position of non residents with UK assets, see inheritance tax for non residents with UK assets.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.