08 September 2016


  • The government has published near-final proposals on enveloped properties. These confirm that there will be no de-enveloping relief.
  • We now know enough to make firm recommendations to those affected.
  • There is no magic-bullet: but we can assist you to find the least-bad solution.
  • The right solution will vary significantly according to the facts of the particular case: we believe that there are nearly 14,000 different fact-patterns.
  • However, the quick ready-reckoner in this briefing should provide the most likely solution in most cases.
  • Restructuring may be possible after 5 April 2017, but will almost certainly be a lot easier if done before that date.
  • Planning and implementation should start NOW. It may prove impossible to complete by 5 April 2017 if implementation has not started by the end of December 2016. 

In more detail

It is common for those not domiciled in the UK (“non-doms”) – whether resident or non-resident – to own UK real-estate through an offshore structure. Typically this structure will consist of an offshore company; less commonly an offshore partnership. The company (or partnership) may well be owned by a trust.

The purpose of such structures has usually been to convert a UK asset (real-estate) into a non-UK asset (shares in an offshore company). This avoids UK inheritance tax (IHT).

Such structures – at least for residential property – have been under attack from tax changes since at least 2000, but particularly since the introduction of ATED in 2013, and CGT changes in 2013 and 2015. The final nail in the coffin was the announcement that, from April 2017, residential property in such structures would become subject to UK IHT. This removes the final tax-advantage of such structures.

In many if not most cases, residential-property structures will after 2017 be positively disadvantageous at least for tax purposes. However, non-tax advantages such as confidentiality are also rapidly diminishing.

It has been clear since the announcement of the IHT changes that many structures will need to be dismantled. The question, until now, has been how and, in particular, whether the government would grant any reliefs (“de-enveloping relief”) for any transactional taxes incurred during the dismantling.

This last question has now been answered: unfortunately with a clear “no”. The government announced on 18 August that there would be no de-enveloping relief and that the proposals would go ahead from 6 April 2017.


Given the lack of de-enveloping relief, those with offshore structures owning UK real-estate face an unpalatable choice between a range of different taxes. The exact position will depend upon a range of factors, but broadly there are two choices, together with, in either case, working out how to deal with the IHT risk:

  • Continue to pay ATED at ever-increasing rates.
  • Incur transactional taxes (CGT and possibly SDLT) to dismantle the structure.

There is no magic-bullet solution here. There are just bad alternatives and worse alternatives.

The least-bad alternative – ready-reckoner

A few years’ ago, we attempted to classify all the most common fact-patterns involving offshore structures. We hoped to come up with some standard solutions. Unfortunately, we quickly got to 3,456 different fact-patterns that might apply. Those have since increased fourfold, so we now believe that there are 13,824 alternatives – clearly too many to attempt to provide an off-the-shelf answer.

However, in the process, we worked out that answering three initial questions would significantly narrow-down the possibilities and would give the right (ie the least-bad) answer in about 85-90% of cases.

The ready-reckoner – for properties already in offshore structures - is as follows:

Question 1 – is the property commercial or residential?

For these purposes, property is commercial only if it not a place for someone to live. Even if residential property is let out on a commercial basis, it is still residential for these purposes. However, take specialist advice if the property is “institutional” residential – such as student accommodation; nursing homes; hotels; halls of residence etc.

If the property is commercial then the likely solution will be to keep the existing structure. You don’t need to answer questions 2 and 3.

If the property is residential, then proceed to question 2.

Question 2 – is the property occupied by family members or is it ever likely to be?

Note that it is vital to be clear about this. We come across many cases where the property is currently let to third-party tenants, only to find that a year or two later the family wish to occupy it themselves. 

If the property is occupied by family members then the likely solution will be to get rid of the company (albeit there will be a cost to do so).

Only if the property is, and will always be, let on a commercial basis to non-family members is it likely to be right to keep the company.

Question 3 – if there is a trust, is the settlor willing to exclude himself from any benefit?

If not then the solution is likely to be to dismantle the trust.

If so then the trust might be kept, although there are still pros and cons of this.

The dismantling process

Having arrived at a likely answer, the next step is to refine it. This will involve:

  • testing the conclusion against the actual facts
  • working out the best alternative. This is likely to involve personal or co-ownership, possibly coupled with insurance and/or commercial borrowing
  • working out the transactional taxes (CGT, SDLT, possibly some IHT) to reach that solution
  • and then re-testing the conclusion depending upon the level of the transactional taxes.

Refining the answer may take several rounds – remembering that the answer is likely to be unpalatable whichever course is chosen.


Once the answer is finally worked out, the solution can be implemented.

But remember that implementation is likely to take several months, as it will need to involve a range of parties (valuers, liquidators, trustees, landlords, lenders, conveyancers).

Firm plans should therefore be concluded ideally by the end of October 2016 and at latest by 31 December 2016 so that implementation can proceed before 5 April 2017.

Is it vital to implement by 5 April 2017?

While each case will be different, the answer in most cases will be that it is not vital to implement by 5 April 2017, but it will be significantly more costly to do so after that date. There are three main reasons for this:

  • Implementation after 5 April 2017 will, where there is a trust, inevitably involve an IHT charge of between 0% and 6%. It may be pot-luck how big this tax charge is. 
  • There will, in most cases, be a 7-year risk on the settlor’s life if implementation is delayed.
  • The cashflow disadvantages of paying another ATED charge in April 2017.

CGT will also need to be considered – although of course this might go up or down depending on how property prices move.

How can we help?

Burges Salmon has one of the largest teams of lawyers dealing with non-dom clients anywhere in the UK.

We are pleased to offer a fixed-price review of a simple [1] structure involving a questionnaire, a report tailored to that questionnaire and an optional one hour meeting with the client.
We can subsequently refine the recommendations in the report and assist with co-ordinating implementation. The price for either of these would be agreed separately.

[1] Single property; single company; may or may not include a trust; may or may not include commercial borrowing.

Key contact

Headshot John Barnett

John Barnett Partner

  • Head of Partnerships
  • Private Client Services
  • Tax

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