Inheritance Tax and Offshore Structures Holding UK Property

For years, holding UK residential property through an offshore company was standard advice for non-UK domiciled owners, because shares in a foreign company counted as excluded property for Inheritance Tax even when every brick of the underlying asset sat in London or the North West. That shelter was closed off in 2017, and the wider reform of who counts as within the UK's tax net at all landed in April 2025. Anyone still assuming the envelope keeps a property out of an estate for IHT purposes is working from a position that stopped being accurate years before this article was written.

What Schedule A1 actually did in 2017

Finance (No.2) Act 2017 inserted Schedule A1 into the Inheritance Tax Act 1984, effective from 6 April 2017. Before that date, an individual who wasn't UK domiciled could hold UK residential property through a non-UK close company or partnership, and the shares or interest in that offshore vehicle were treated as excluded property for IHT — assets outside the UK owned by someone outside the UK's domicile-based tax net, in other words, weren't part of their estate for IHT purposes, even though the property itself never left the UK.

Schedule A1 looks straight through that structure. To the extent that the value of shares or a partnership interest in a close company derives from UK residential property, that value is no longer excluded property, regardless of where the company is incorporated or where its owner is domiciled. The look-through applies whether the property is held directly by the offshore company or via a chain of companies, and it applies to trusts settled by non-doms that hold UK residential property through the same kind of structure. The practical effect is that an asset that looked, on paper, like a foreign shareholding has been treated as UK residential property for IHT ever since, for anyone within scope of the rule.

Loans, security and the anti-avoidance sweep

The obvious workaround — fund the acquisition with debt rather than equity, so the value sits in a loan rather than in the shares — was anticipated and blocked in the same schedule. Money lent to enable a company or partnership to acquire, maintain or improve UK residential property is itself brought within scope, in the hands of whoever holds the loan, along with any security, collateral or guarantee given in connection with it. Restructuring the same economic arrangement around debt rather than equity doesn't move the value outside Schedule A1's reach; it just moves which piece of paper the rule attaches to.

This matters because a lot of pre-2017 structuring used exactly this kind of layering — an offshore lending company advancing funds to an offshore property-holding company, both ultimately owned by the same family trust — specifically to keep value a step removed from direct ownership. The anti-avoidance sweep in Schedule A1 was drafted with that pattern in mind, and it catches it.

Why April 2025's domicile reform makes the picture different again

Schedule A1 was built around domicile, because the excluded property rule it was closing a hole in was itself a domicile-based concept. From 6 April 2025, the basis for IHT changed more fundamentally: domicile stopped being the test for whether someone's worldwide estate is exposed to UK IHT, replaced by a residence-based test built around long-term UK residence, broadly someone who has been UK resident for a set number of the preceding tax years, with a tail period of continued exposure after they leave.

For anyone who qualifies as a long-term UK resident under the new rules, this makes much of Schedule A1's original purpose redundant for their own structures, not because the rule was repealed but because it's no longer doing the work. A long-term resident's worldwide estate, offshore company shares included, is already within the UK IHT net under the general residence-based rules, so the look-through to the underlying UK property adds nothing extra for that individual — the shares were already exposed regardless of what they were worth or where the underlying asset sat. Schedule A1's look-through still has a job to do for individuals who are not yet long-term UK residents, where the general residence-based exposure doesn't yet apply, and for existing trust structures it was specifically designed to reach, but the population it's protecting revenue from has narrowed considerably since 2017.

The one carve-out that still matters: commercial and non-UK property

Schedule A1 is deliberately narrow in what it targets: UK residential property, not commercial property, and not property outside the UK. An offshore company holding a commercial investment, or a portfolio of property outside the UK, isn't touched by the look-through, and shares in that company can still be excluded property for an individual who genuinely isn't within the UK's residence-based IHT net. This is the one place where the old logic of enveloping still does something, and it's also why mixed-use assets need the same kind of careful apportionment that comes up elsewhere in property tax — the residential element of a building is in scope, the commercial element held through the same structure generally isn't, and the split matters as much here as it does when working out SDLT on a mixed-use purchase.

What this means for anyone still relying on pre-2017 structuring

A structure set up before April 2017 on the basis that the offshore envelope kept UK residential property outside the estate has been exposed to IHT on that value for years, whether or not anyone has revisited the position since. Unwinding an old envelope isn't free — de-enveloping can trigger SDLT, CGT and ATED considerations of its own, and needs its own planning rather than a knee-jerk reaction — but leaving a structure in place purely because "that's what it was set up to do" is planning for a rule that stopped applying some time ago. The right first step is establishing where the value actually sits today under Schedule A1 and the post-2025 residence rules, not assuming the original 2017-era advice still holds.

Common mistakes

• Assuming an offshore company still shelters UK residential property from IHT because that was the position when the structure was first set up
• Restructuring around a loan rather than direct equity and assuming that moves value outside Schedule A1's reach
• Not revisiting an existing structure's IHT exposure in light of the April 2025 move to residence-based IHT
• Treating commercial and residential elements of a mixed structure the same way when only the residential value is caught
• Unwinding an offshore envelope without planning for the SDLT, CGT and ATED consequences of doing so

What this means for property owners

If UK residential property sits inside an offshore structure, the question worth asking isn't whether the envelope still works — for most owners it stopped working for IHT purposes in April 2017, and the 2025 reform has narrowed what's left of the gap even further. The question is what the current exposure actually is, whether it's better managed by unwinding the structure, restructuring it, or leaving it in place and planning around it, and whether the original reasons for setting it up still apply at all now that both the look-through rule and the domicile basis it was built against have moved on. That's a conversation worth having properly rather than inheriting an answer from advice given under rules that no longer exist.

Common questions

Does putting UK residential property into an offshore company still protect it from Inheritance Tax?

No. Since 6 April 2017, Schedule A1 to the Inheritance Tax Act 1984 looks through offshore close companies and partnerships and brings the value they derive from UK residential property back into the IHT net, regardless of the owner's domicile. Shares in the offshore company are no longer excluded property to the extent their value comes from UK residential property, so the envelope stopped sheltering that value years ago.

I took out a loan to buy my UK property through an offshore company. Is that loan itself exposed to Inheritance Tax?

Yes, in the hands of whoever holds the loan or provided security for it. Schedule A1 also catches loans made to acquire, maintain or improve UK residential property, and any collateral, security or guarantee given in connection with such a loan, so restructuring an envelope around debt rather than direct equity doesn't sidestep the rule.

Does the April 2025 domicile changes mean I don't need to worry about Schedule A1 anymore?

Not exactly, though its role has shrunk. From 6 April 2025 IHT moved from a domicile-based system to a residence-based one, so anyone who becomes a long-term UK resident is already exposed to IHT on worldwide assets, offshore company shares included, without needing Schedule A1 to reach the underlying property. Schedule A1 still matters for individuals who are not yet long-term UK residents and for older trust structures it was specifically designed to reach.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

← All articles