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IHTM04311 | Schedule A1/IHTA 84: UK residential property and UK agricultural property

From HM Revenue & Customs · Inheritance Tax Manual

With effect from 6 April 2017, UK residential property owned indirectly by individuals (or by the trustees of trusts that they have created) together with related loan finance was brought within the scope of Inheritance Tax (IHT). The rules are incorporated into the Inheritance Tax Act 1984 as a new schedule, Schedule A1.

These rules reduce the availability of excluded property, which for times prior until 6 April 2025 depended on the domicile (IHTM13000 of the individual (or settlor) but now depends upon long-term residence. You can find guidance on this change at the beginning of IHTM47000.

For times on or after 6 April 2026 the property within the scope of Schedule A1 has been extended by Part 2 of Schedule 12 to the Finance Act 2026 and now includes agricultural property in the UK. The term “relevant UK property” is used to describe the combination of UK residences and agricultural property.

Indirect ownership of UK residential property or agricultural property (Para 2 SchA1)

Prior to 6 April 2017 it was possible for non-UK domiciled individuals and trustees to avoid a charge to IHT by holding UK assets through an offshore vehicle, such as a company incorporated outside the UK. The company shares, being a foreign asset were classified as excluded property (IHTM04251) and so were not within the scope of IHT.

Schedual A1 limits – by value - the availability of excluded property to the extent that the open market value of an interest in

  1. a foreign close company, or

  2. a foreign partnership

is directly or indirectly attributable to the value of UK residential property or for times on or after 6 April 2026, agricultural property.

It is only the value of the company shares or partnership interest that is attributable to UK residential property or agricultural property that is within the scope of Schedule A1. The value of the shares or partnership interest that is attributable to any other enveloped assets is not within scope may remain excluded property.

For these purposes a UK residential property interest is defined as an interest in UK land which consists of or includes a dwelling or which subsists under contract for an off-plan purchase. These and other terms are defined in the new legislation or by reference to the non-UK resident capital gains tax legislation (S1A & 1C/TCGA92 for interest in land and paragraphs 16B-H/Sch 2 FA19 for dwelling).

UK agricultural property borrows from the existing definition at S115(2)/IHTA84 and means agricultural land or pasture in the United Kingdom and includes—

(a) woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture, and

(b) cottages, farm buildings and farmhouses, together with the land occupied with them.

Note that for times prior to 6 April 2026 a UK farmhouse, together with its grounds, was already in scope as a dwelling. However, the other land and buildings are now also in scope.

There are also specific definitions for close companies, derived from the Corporation Tax Act 2010 and for partnerships (Paras 9 & 10/SchA1).

Loans and collateral related to UK residential property (Para 3 & 4/Sch A1)

In addition, the following foreign assets can no longer qualify as excluded property

  • loans (‘relevant loans’) used to acquire, maintain or enhance UK residential or agricultural property and

  • money or money’s worth held or otherwise made available as security, collateral or guarantee for relevant loans to the extent that they do not exceed the value of the loans.

There is more detail on both these measures in the pages beginning at IHTM04312.

There is also further technical guidance available. This guidance, published by external representative bodies, such as The Chartered Institute of Taxation and The Society of Trust and Estate Practitioners, is in the form of Questions and Answers, with comments by HMRC.