Ownership of UK property through offshore structures has historically been used by non-UK residents for a range of commercial, investment, succession planning, and asset-holding purposes. Over time, significant developments in the UK tax regime and related regulatory landscape have affected the way such properties are held through offshore companies, trusts, and other non-UK structures.
As a result, arrangements that once offered administrative, succession, or tax advantages may no longer achieve the objectives for which they were originally established. In light of these developments, owners of UK property held through offshore structures may wish to consider whether their existing arrangements remain appropriate for their objectives.
This article examines the principal mechanisms available for restructuring such ownership. Prior to April 2017, acquiring UK residential property through an offshore company, often held by a trust, was a common and established route for non-UK residents and international investors who were not domiciled in the UK.
The shares in the offshore company were treated as foreign assets and therefore fell outside the scope of UK inheritance tax (IHT). The Finance (No. 2) Act 2017 removed that advantage: shares in an offshore company deriving their value from UK residential property are now treated as UK assets and fall within the scope of IHT. From 6 April 2025, IHT has been based on residence rather than domicile. For owners who are not long-term UK residents, only UK-situated assets are generally within scope, and UK residential property held through a company remains one such asset.
These structures therefore no longer provide protection from IHT, while continuing to involve costs such as the Annual Tax on Enveloped Dwellings (ATED), as well as ongoing company and trust administration fees. As a result, many families have begun considering whether to de-envelope or otherwise restructure their existing arrangements. The appropriate route depends on how the property is held. In broad terms, there are two scenarios: a trust that holds a company which owns the UK property, or a company that owns the UK property directly.
Route 1: Trust holding a company that owns UK property Holding UK property through a trust and a company is often inefficient. A discretionary trust, and most trusts created after 22 March 2006, fall within the “relevant property” regime, which brings two principal charges:
■ Ten-year anniversary charge: a periodic charge of up to 6% of the value of the trust above the available nil-rate band (NRB) of up to £325,000.
■ Exit charge: a one-off charge of up to 6% triggered when assets leave the trust, including on its closure. It is calculated by the number of complete quarters that have passed since the last ten-year anniversary or, if there has not yet been one, since the trust was created. Where the main purpose of the structure was simply to own a property, the trust adds cost and complexity without delivering a corresponding benefit.
Closing the trust is therefore often the first step to consider in simplifying the structure. Because the exit charge grows with each quarter since the last anniversary, it is generally advisable to act while that period is still short. While deciding to whom the shares should pass on closure, the exemptions available under UK law should be considered, such as the spousal exemption. A transfer out of the trust is also a disposal by the trustees for capital gains tax purposes, so the tax cost of each option should be modelled before a decision is made.
Route 2: Company owning UK property Where a company owns the UK property directly, the usual approach is to wind up the company, which brings ATED and the company’s running costs to an end, and to hold the property in personal names. Holding the property personally leaves it within the scope of IHT, so many families then gift it onward, for example to their children. Such a gift is a “potentially exempt transfer” (PET). It becomes fully exempt from IHT if the donor survives for seven years following the transfer. If the donor dies within seven years, IHT may be due, with taper relief reducing the tax if the donor survives three years after making the gift. Two cautions apply.
Firstly, if the donor continues to use the property without paying full market rent, the gift may be ignored for IHT purposes (a “gift with reservation of benefit”). An exception may apply where the donor gives away only an undivided share of the property, both donor and donee occupy it, and the donor receives no more than a negligible benefit from the donee in connection with the gift (Finance Act 1986, s 102B(4)). The donor may continue to meet all the running costs, but the donee must not pay more than their own share. Secondly, the gift is also a disposal for capital gains tax and may attract SDLT if there is a mortgage.
The following allowances are also relevant:
■ Every individual has a nil-rate band of £325,000, frozen until April 2031; IHT is charged at 40% on value above it.
■ Any unused nil-rate band can be transferred between spouses on the first death.
■ The £3,000 annual gift exemption also applies. Taxes to consider when de-enveloping Two taxes require particular attention when de-enveloping a property: Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT). Capital Gains Tax. Non-UK residents are subject to UK tax on gains from UK property, including gains on shares in a company that derives at least 75% of its value from UK land (where the seller holds an interest of 25% or more). On de-enveloping, gains can arise at two levels: in the company on the property itself, which is charged to corporation tax at rates of 19% to 25% depending on profits, and on the shareholders on their shares or the liquidation proceeds. For individuals, gains are taxed at 18% or 24%.
For non-residents, gains are generally measured from market value at a rebasing date rather than original cost (5 April 2015 for direct disposals of UK residential property, such as the company’s disposal of the property, and 5 April 2019 for indirect disposals, such as the shareholders’ disposal of their shares), or from a later acquisition date. The overall charge depends on the structure, so it should be calculated before any step is taken. Stamp Duty Land Tax. SDLT is payable in England and Northern Ireland on the acquisition of residential property at rates that rise to 12%, with a 5% surcharge for additional dwellings and company purchases, and a further 2% surcharge for non-UK residents. The top rate can therefore reach 19% on the part of the price for properties valued above £1.5 million.
However, where a property is transferred debt-free from a company to the owners of its shares, SDLT will not generally apply. If the property is subject to a mortgage that the shareholder takes on, SDLT may be due on the debt assumed. Scotland and Wales have their own taxes (LBTT and LTT respectively), with different rates. Conclusion These are the two principal routes available for families seeking to unwind offshore property structures. The right approach, and its timing, will depend on the structures in place, the value and history of the property, the level of any borrowing, and the family’s circumstances, including the owners’ residence status and the tax position in their country of residence. Given the interaction between IHT, CGT and SDLT, professional advice should be obtained before any steps are implemented.
If you wish to seek more information or assistance in such matter, please contact the author at: H.alwagayan@ nenlawfirm.com