IHT and Loan to Fund UK Residential Property

Mr A is non-UK resident and domiciled. He has loaned a substantial amount of money to a Channel Islands structure (owned by members of his family, but not him), which has used the money to fund (via discounted bonds) its wholly-owned UK subsidiary to invest in UK residential property.

Since 2017, Mr A has been exposed to UK IHT thanks to sch A1, IHTA 1984. Two planning points are being considered.

  1. If Mr A gifts the loans to his grandchildren, does the 7-year rule apply? In which case the sooner that he does this, the better.
  2. If Mr A leaves the loans in his Will to his (equally non-res/non-dom) Brother, in practical terms how is this reported to HMRC so that the IHT can be accounted for?

Hugh Lask
Harris & Trotter LLP

On the basis that IHTA 1984 Sch A1 applies to the structure (as seems to be the case) and thus the loans are not excluded property any gift therefore to another individual would constitute a PET and the 7 year rule is in point.

Presumably IHT 416 would need completion (not IHT 417).

Malcolm Finney