Inheritance Tax Act 1984 Schedule A1 paragraphs 3–4

Loans

Paragraphs 3 and 4 define which loans connected to UK residential property are brought within the scope of inheritance tax, even when held by non-UK domiciled individuals through offshore structures.

• A loan counts as a "relevant loan" if the funds lent are used, directly or indirectly, to acquire a UK residential property interest, or to acquire an interest in a close company or partnership that itself holds such property.
• Both the creditor's rights under a relevant loan and any money or assets held as security, collateral or guarantee for the loan (up to the loan's value) are treated as UK property for inheritance tax purposes.
• The concept of indirect financing is broad: it covers chains of acquisition where interim assets are bought and sold, or where one loan is used to fund or repay another loan that ultimately finances the property purchase.
• If the UK residential property that made the loan "relevant" is disposed of, the loan ceases to be a relevant loan — in full if the entire property is sold, or proportionately if only part is sold.