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UK property: non-doms take note



With the introduction of recent legislation, UK residential property is within the scope of inheritance tax (IHT) and capital gains tax (CGT) regardless of the residence and domicile of the owner and the structure holding the property.

This briefing focuses on the UK tax position of the non-resident and non-domiciled owner or ultimate beneficial owner (UBO) of UK residential property (“property”, for ease of reference).


Historically, if the owner of the property was resident outside the UK, no CGT was payable on the disposal of the property. The foreign domiciled owner could use offshore companies or debt to keep the underlying property (or its value) outside the charge to IHT (eg, in the event of death).

Since April 2015, all UK residential property is subject to CGT on disposal at a gain except to the extent that it qualifies as the disponer’s only or main residence. Non-resident disponers should be aware that they need to have spent at least 90 nights in the property in any tax year in which they intend to claim main residence relief from CGT. Shares in a property-rich company (even if non-resident) are also within the scope of CGT on disposal. A “disposal” includes sales, exchanges, gifts and transfers into and out of trust. A property-rich company is one that derives at least 75% of its value from UK land. The current top rate of CGT on residential property is 28% where the disponer is an individual or a trust but 25% where the disponer is a company.

Since April 2017, all UK residential property (however held) or its value is, as a general proposition, within the scope of IHT. IHT is relevant on death, lifetime gifts (particularly if the donor dies within seven years), transfers into trust and certain transfers into closely-held companies. The fact that IHT is chargeable (eg, because there is no consideration) does not prevent a CGT charge arising on one and the same transaction.

With the extension of the recent trust registration scheme (TRS) and the introduction of the register of overseas entities (ROE) (compliance and transparency regimes), payment of the substantive charges to tax no longer relies just on the good faith of the person with the liability. Happily for the practitioner, this also obviates their least favourite question: “How will they know?”.

The net effect of these changes is that the foreign owner or UBO has the same estate planning concerns relating to UK property as the UK owner with similar CGT constraints. It’s likely that many such owners have either been unaware of the changes or have chosen to ignore them, perhaps made complacent by the initial lack of an enforcement mechanism.

What’s changed?

Let’s start with IHT. Before April 2017, there were various structures that effectively took UK residential property (or its value) outside the scope of IHT. These could have involved a combination of ownership through non-UK companies, trusts and debt (often “soft” debt, provided on non-commercial terms). As a general proposition, these structures no longer work for IHT purposes and it’s quite likely that some of them aggravate the UK tax position. By way of example, a trust holding shares in a BVI company that holds a residential property is now within the scope of the “relevant property” charges, so that IHT at up to 6% is payable on the value of the property on every 10-year anniversary of the trust and, depending on the circumstances, at 40% on the death of the settlor if he or she has reserved a benefit in the trust property.

It's worth setting out some IHT basics.

Assets are within the scope of IHT if the owner is domiciled or deemed to be domiciled in the UK. Where the owner is not domiciled (or deemed domiciled) in the UK, only assets situated in the UK are within scope. Since April 2017, non-UK structures holding or relating to residential property are all (as a general rule) also within the scope of IHT, even if the UBO has a foreign domicile.

To determine the value of the assets subject to IHT, secured debts are deducted. There are restrictions on the deductibility of debts but that is a large topic and beyond the scope of this briefing.

The net value of assets above the threshold of £325,000 are subject to IHT at a flat rate of 40%, unless the recipient is a spouse, civil partner (CP) or charity (charitable according to the law in the UK). Where property is subject to IHT, the executors can elect for the instalment option to apply, so that IHT can be paid in 10 equal instalments over a 10-year period. This eases cashflow but each instalment after the first is subject to interest, currently at 6% per year.

Lifetime estate planning

IHT is sometimes said to be a voluntary tax. It is in the sense that if a person gives away an asset and survives seven years, it falls out of his / her estate for IHT purposes. If that person survives at least three years but not as many as seven, then the rate of IHT tapers (32% three to four years; 24% four to five years; 16% five to six years; 8% six to seven years).

However, if the donor “reserves a benefit” (essentially, gives with one hand and takes back with the other), then the value of the property remains within the donor’s estate unless the reservation ceases more than seven years before the donor’s death. Reservation of benefit does not generally apply as between spouses and CPs. By way of example, if Winnie gave her property to her husband Hugo, there is no reservation of benefit, so Winnie can continue using the property without any adverse IHT implications. However, if Winnie has an actual or deemed domicile in the UK and Hugo does not, then there is a risk that Winnie has reserved a benefit as a result of this arrangement.

If Winnie gives the property to her daughter, Debbie, then Winnie ought not to use the property more than incidentally unless she pays a full market rent for doing so. The rent would itself be subject to income tax in the UK, so this is seldom an attractive option.

Where there is a risk of a benefit being reserved following the gift of a property, rather than the donor (Winnie, in this case), giving away the entire property, she could give away a share of the property to the donee (Debbie) provided that Debbie also occupies the property but pays no more than an appropriate share of the outgoings. Determining what an appropriate share of the outgoings might be is not straightforward, so it is often safest for the donor to pay them in full (so as to avoid her reserving a benefit). The effect is that, provided Winnie survives seven years, the value of the share she gave to Debbie will be free from IHT on Winnie’s death, though the share Winnie retained would be subject to IHT (unless an exemption applied).

This approach is not without risk. Any gift of a share in the property exposes it to third party claimants of the donee, including (in this case) Debbie’s spouse or CP in the event of a divorce or the dissolution of the civil partnership, Debbie’s death, bankruptcy, or loss of capacity. In any of these events, Winnie’s enjoyment of the property could be affected, however good her relationship with Debbie.

A key consideration of lifetime planning (lifetime gifts) is CGT as all disposals of UK real estate (including residential property) and property rich companies are within the scope of CGT (or corporation tax on capital gains) regardless of the residence and domicile status of the disponer. Where it is residential property being disposed of by a non-resident, it is only the gain after 5 April 2015 that is subject to CGT. Any gain accruing before that date is not charged, so there is a relative benefit to being non-resident at the time of disposal. Sterling values are used to determine the gain, even if the property has depreciated in dollars or euros.

Whether or not the disposal gives rise to a gain, a non-resident CGT return has to be submitted to HMRC within 60 days of the disposal and, if appropriate, the tax paid.

Not that any client particularly likes this option but if the owner is neither domiciled nor deemed to be domiciled in the UK, once the property is sold and the proceeds taken out of the UK, the IHT exposure disappears. This can be helpful in cases where a trust holds UK property, and the trustees are able to sell the property and remove the sale proceeds from the UK prior to the next 10-year anniversary. However, where the trustees sell shares in a property-holding company rather than the underlying UK property, there is a two-year IHT “tail” attaching to the sale proceeds, so care needs to be taken to ensure any share sale is completed more than two years prior to the next 10-year anniversary, if the aim is to avoid an IHT anniversary charge.

Will planning

Where the owner is married or in a civil partnership, the owner could leave the property by will to the spouse or civil partner. In that event, the property will be exempt from IHT on the owner’s death. By itself, this will not solve the IHT exposure but it defers the liability until the death of the spouse or CP. It will, however, be open to the spouse or CP to sell the property free of CGT (as the property is rebased for CGT on the former owner’s death) or to pass it down a generation (before the property has appreciated post-death) and hope to survive seven years so that the value of the property falls outside the donor’s estate for IHT purposes.

Although it will not save any IHT, if life or term assurance is taken out on the life of the owner (and, preferably, written in trust), there will be a fund of money to meet the IHT charge, thereby obviating any need to sell the property to meet the IHT liability.


The best means of mitigating the IHT exposure depends on the facts of the particular case (particularly the views and wishes of the owner). Given the recent changes affecting UK real estate and residential property in particular and the new compliance requirements, ignoring the issue is no longer an option.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2023

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About the authors

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Nick Dunnell


Nick's expertise in private client and tax involves acting for individuals, families and trustees in the UK and abroad to mitigate their tax exposure, and structure their wealth against potential threats posed to it. 

Nick's expertise in private client and tax involves acting for individuals, families and trustees in the UK and abroad to mitigate their tax exposure, and structure their wealth against potential threats posed to it. 

Email Nick +44 (0)20 3375 7573
Alexis Hille lawyer photo

Alexis Hille


Alexis specialises in providing advice to UK and international individuals, family offices and trustees on wealth structuring, estate planning and complex inheritance tax, income tax and capital gains tax planning.

Alexis specialises in providing advice to UK and international individuals, family offices and trustees on wealth structuring, estate planning and complex inheritance tax, income tax and capital gains tax planning.

Email Alexis +44 (0)20 3375 7160
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