IHTM04313 - Finance (No 2) Act 2017 changes: relevant loans
This rule applies to loans made바카라 사이트¯to individuals, trusteesÌýor partnerships to finance the acquisition, maintenanceÌýor enhancement of UK residential property interest (UKRPI). These loans are called relevant loansÌýand such loans cannot be excluded property (IHTM04251)바카라 사이트¯in the hands of the creditor. Loans to companies are not relevant loans but they will still be within the scope of the new rules because the creditor will be a participator (and therefore the holder of an interest) in the company.Ìý
Example 1Ìý
Carlos lendsÌý£1m to his student daughter Isabella and she uses the money to purchaseÌýa £1.1m house in Oxford. So, if Carlos dies then the value of the loan will form part of his estate even if the loan is structured as a foreign assetÌýand even if Carlos is not a long-term UK resident. The daughter has no other assets in the UK or elsewhere and her net estate is initially £100,000 (£1.1m less the £1m loan).Ìý
A relevant loan extends to money or money바카라 사이트™s worth held or otherwise made available as security, collateral or guarantee for a loan that is a relevant loan. The value used is the lower of the value of the loan or the security, collateralÌýor guarantee.Ìý
Example 2Ìý
If in example 1 the loan is made by a bank having received a right over £2m of Carlos바카라 사이트™ assets then such collateral cannot be excluded property but, initially, the value of the collateral is capped at the value of the loan, £1m. The position at the point of any Inheritance Tax (IHT) charge will depend upon the value of the loan and the collateral.Ìý
If the value of the loan is £750,000 at that time but the collateral is, say, £700,000 then the lower value is used. However, if the collateral was provided equally by Carlos and Isabella바카라 사이트™s brother, Ferdinand, then both Carlos and Ferdinand would have £350,000 worth of non-excluded property.Ìý
Example 3Ìý
Apple is not long-term UK residentÌý(on or afterÌý6 April 2025) orÌýdomiciledÌý(beforeÌý6 April 2025) in the UK. A bank manages her portfolio of non-UK investments, valued at £10m. She borrows £3m from the bank and the portfolio is offered as security. Together with the other assets she purchasesÌýa former farmhouse in the UK for £5m.Ìý
The collateral of £10m is capped to the value of the relevant loan at £3m, she has the farmhouse worth £5m and she owes the bank £3m. If she dies then her taxable estate is £5m, being the £3m collateral plus the net value of the residence (£5m less £3m).Ìý
A loan ceases to be a relevant loan if the UKRPI is disposed of.Ìý
Example 4Ìý
If 바카라 사이트“ see example 1 - Isabella sells the house in the open marketÌýthen Carlos바카라 사이트™ loan (or collateral) will no longer be a relevant loan and no IHT charge arises as a result.Ìý
Examples 1 to 4 apply equally to loans to trustees and to partnerships and to loans made indirectly, e.g. loans made from loans and to situations where the loan is used to maintainÌýor enhance the value of the UKRPI.Ìý
Relevant loans include loans made to finance the acquisition of property already within the new measure (close companies and partnerships).Ìý
Example 5Ìý
David lends £1m to the trustees of his grandfather바카라 사이트™s will trust in 2018. His grandfather was never long-term UK resident (on or after 6 April 2025) or domiciled (before 6 April 2025) in the UK. The trustees use the money to acquireÌýthe share capital of a company that had acquiredÌýa house in Oxford in 2012. David바카라 사이트™s loan is a relevant loan.Ìý
Likewise, if the trustees used the money to subscribe for shares in a new Jersey company and the company used the subscription proceeds to acquireÌýa UKRPI then David바카라 사이트™s loan is a relevant loan.Ìý
Even though a loan to a close company is not a relevant loan, the lender will have an interest in the company for the purposes of the new rules because there is no exclusion for loan creditors.Ìý
Example 6Ìý
If, in example 5, the trustees already owned the shares in the company and David makes a loan to the company, which invests the money in foreign assets then David will not have made a relevant loan. InsteadÌýhe now has participation rights in the company and those rights will be denied excluded property status to the extent that the value of the company relates to any UKRPI.Ìý
Example 7Ìý
John isÌýnot long-term UK resident (on or after 6 April 2025) or domiciledÌý(before 6 April 2025) in the UK.ÌýHe owns all of the shares in a Jersey Company (J Co) that owns foreign assets worth £10m. John바카라 사이트™s brother Seamus, who is alsoÌýnot long-term UK resident or domiciled in the UK,Ìýlends John £2m in order to fund J Co (by way of loan) and then J Co purchases UK residential properties worth £12m.Ìý
John바카라 사이트™s interest in J Co is no longer excluded property because the value of John바카라 사이트™s stake in that company is now attributable to UKRPI.Ìý
Seamus has made a relevant loan, which is not excluded property. While his loan did not fund the acquisition of a UKRPI by an individual, partnership or trustee it was used by John to acquireÌýan interest (as a loan creditor) in J Co and J Co as an intermediary has acquiredÌýa UKRPI.Ìý
Note that if the loan to J Co was made by another close company K CoÌýthen that loan would바카라 사이트¯not be a relevant loan. InsteadÌýthe participators in K Co would have an interest in J Co. and therefore an indirect interest in the UKRPI, subject to the de minimis rule (IHTM04312).