UK Law and Practice Contributed by: Ros Bever, Claire-Marie Cornford, Helen Clarke and Ashley Hill, Irwin Mitchell
and account for basic rate tax on UK rental income, unless HMRC has specifically agreed that the rent can be paid gross to the landlord. Higher-value UK residential properties owned within a corporate wrapper are liable for the Annual Tax on Enveloped Dwellings (ATED), and regular revaluations are required. Entities eligible for relief in certain trad - ing and business contexts must still make an annual ATED return. The introduction of ATED has discouraged the holding of high-value properties through offshore corporate structures. 1.5 Stability of Tax Laws Recent and Forthcoming Changes A series of recent and forthcoming tax rule changes will significantly extend the reach of IHT. From 6 April 2025 – introduction of long-term residence test as basis for UK taxation Those who come to live in the UK for ten years or more are now liable for IHT on their worldwide wealth, and depending on the length of residence in the UK will remain liable for between three and ten years after they leave. This is subject to certain transitional provisions and to the application of any relevant double tax treaty provi - sions, which can be complex to navigate. This change is leading to an acute need for individu - als and fiduciaries to review their position with the assistance of professional advice. Some may be inclined to cut short living in the UK to avoid being fully exposed to UK IHT, while oth - ers may opt to insure the risk (via life insurance for a seven-year term on lifetime gifts or whole-of-life cover in respect of IHT exposure on death, and often written in trust). The advantages of excluded property trusts have been stripped away (subject to certain transitional provisions). Their exposure to ten-year anniversary and exit charges will depend on the settlor’s long- term residency and necessitate ongoing monitoring.
Offshore FICs may increase in popularity as a wealth planning structure for internationally mobile individu - als (as an alternative to excluded property trusts). The rules provide greater clarity for UK expats who have gone to live outside the UK as regards their being outside the scope of IHT on non-UK-situated assets after ten years of non-UK residence. From 6 April 2026 – introduction of GBP1 million limit on 100% relief for APR and BPR BPR and APR are to be limited to 100% on the first GBP1 million of an individual’s business/farm assets, and to 50% thereafter (giving rise to an IHT charge at 20% on the excess, being half the usual death rate). This will also limit APR and BPR in the context of the IHT regime applicable to trusts. Relief on shares listed on alternative markets such as AIM are to be reduced from 100% to 50%. The scope of APR is to be broadened to include cer - tain environmental land management and conserva - tion schemes. Family business owners and farmers are concerned that there will be insufficient liquidity in their estates to meet an increased IHT exposure, and are accelerating their succession planning as a result. Many are now making lifetime gifts of APR and BPR qualifying assets in the hope of passing these on IHT- free, provided they survive seven years. Fragmenting ownership among family members will be beneficial going forward (so that relief at 100% for the first GBP1 million of qualifying assets is likewise multiplied). Careful consideration is needed as lifetime gifts can come at a significant CGT cost (albeit business asset holdover relief may be available). Some may be more inclined to take out life insurance (written in trust) to cover IHT exposure, but the cost can be prohibitive for older business owners and farmers.
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