IHT On Foreign Holiday Homes Held Through SCIS And SPVS
- Adil Akhtar
- 13 hours ago
- 15 min read
IHT on Foreign Holiday Homes Held Through SCIs and SPVs: The UK Position in 2026/27
A UK long-term resident who owns a foreign holiday home through an overseas company, whether a French SCI, a Spanish SPV, or any other foreign vehicle, cannot use the corporate wrapper to take the property outside the scope of UK Inheritance Tax. The shares in the company are the taxable asset, and their situs follows the place of incorporation or the register of members. For a company registered in France, Spain, or Portugal, the shares are non-UK situs, but that distinction no longer shelters them from IHT for anyone who has been UK resident for ten or more of the last twenty tax years.
That is the core point, and it deserves to be stated plainly before any of the structural detail is examined. A lot of the planning done in this space over the past two decades was predicated on domicile rules that ceased to apply from 6 April 2025. If your adviser has not revisited your structure in light of those changes, the review is overdue.
What Changed in April 2025 and Why It Matters for This Analysis
From 6 April 2025, the UK replaced the previous domicile-based IHT system with a residence-based system. Whether assets abroad are within the scope of UK IHT now depends on whether the deceased was a long-term UK resident at the date of death.
The test for whether a person is a long-term resident starts with looking at whether the deceased had been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event arises.
Under the old rules, a non-domiciled individual could hold a Spanish villa through a Spanish SL (Sociedad Limitada) and argue that the shares in the SL were non-UK situs foreign property, therefore excluded property, outside the IHT net. That argument worked provided domicile was maintained outside the UK. From 6 April 2025, these assets are only regarded as excluded property if held by an individual who is not a long-term resident. Residence, not domicile, is now the determining factor for whether non-UK assets are brought within charge.
For the purpose of 2026/27, this means the question to ask first is not "what is the situs of these shares?" but "is this individual a long-term UK resident?" If the answer to the second question is yes, the situs of the shares becomes largely irrelevant: the worldwide estate is taxable.
Who Counts as a Long-Term Resident in 2026/27
You become a long-term resident once you have been UK tax resident for 10 or more of the previous 20 tax years. Residence is determined using the Statutory Residence Test in each year. Split years, where someone arrives in or leaves the UK partway through a tax year, count as full years of residence when assessing long-term status.
The practical reach of this rule is wider than many people appreciate. A British national who grew up in the UK, spent most of their career here, and bought a French farmhouse as a holiday home ten years ago will almost certainly qualify as a long-term resident. So will a foreign national who moved to the UK in their thirties and has remained. The ten-year residence test catches the majority of people who would instinctively feel they have a legitimate connection to the UK tax system.
There is an IHT tail for those who subsequently leave. If you were resident for 10 to 13 of the last 20 tax years, the tail shortens. Stay resident for 20 years, and you face the full decade of trailing exposure. Leaving the UK does not immediately remove the IHT exposure on a foreign holiday home.
How SCIs and SPVs Are Treated for IHT: The Situs Question
An SCI (Société Civile Immobilière) is a French civil property company commonly used to hold French real estate, often a holiday home. It is a popular vehicle because it can simplify French succession and, under certain circumstances, reduce French inheritance tax liabilities. A Spanish SPV, an Italian SRL holding a Tuscan property, a Portuguese LDA owning an Algarve villa: these are all variants of the same structural idea. The individual holds shares in a foreign company; the company holds the property.
For UK IHT purposes, what is the taxable asset? The shares in the foreign company, not the underlying property directly. The situs of those shares is generally the place where the company is incorporated or, more precisely, where the share register is maintained. A French SCI's shares are French-situs. A Spanish SPV's shares are Spanish-situs. Under the old domicile rules, a non-domiciled individual holding French-situs shares could treat them as excluded property. Under the new long-term residence rules, that analysis no longer works for someone who has spent a decade or more in the UK.
According to HMRC's Inheritance Tax Manual at IHTM27001, from 6 April 2025, a transfer is chargeable to Inheritance Tax if the taxpayer is a long-term UK resident at the time of the transfer, or if the asset is UK situs property. The situs of property is decided by case law, statute, and occasionally double taxation treaties.
So the holding structure changes what is being valued and taxed (shares rather than bricks and mortar directly) but does not in itself remove the charge for a long-term UK resident.
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Does the Structure Still Have Any IHT Value?
This is where the analysis becomes more nuanced. There are three respects in which the corporate structure might still affect the IHT position, though not by eliminating the charge.
First, it changes the valuation basis. Shares in a closely held private company are typically valued at a discount to the net asset value of the underlying property. A 15% to 25% minority discount, or in some cases a discount for illiquidity or the costs of winding up the structure, can reduce the declared value of the shares against what the property itself would have fetched on the open market. HMRC contests aggressive discounts, but a professionally supported valuation at a reasonable discount is defensible and produces a genuine IHT saving compared with direct ownership.
Second, the corporate structure can interact with double taxation treaties. Where there is a double tax treaty, it typically gives the country where the property is physically located the primary right to tax it, allowing the UK estate to claim a credit for any local inheritance or estate tax paid. France, Spain, and several other European countries have treaties with the UK that address this. Where local tax is higher than the equivalent UK liability, the credit effectively eliminates the UK charge on that asset. The existence of a corporate vehicle does not disrupt this analysis, but it may affect which treaty provision applies, because the situs of shares is different from the situs of the underlying land.
Third, and most importantly for long-term planning, the structure can be a sensible vehicle for lifetime gifting. If shares in the foreign company are gifted as a potentially exempt transfer, and the donor survives seven years, the shares fall outside the estate entirely. Gifting direct property across certain jurisdictions involves local formalities (notarial deeds, land registry transfers) and can trigger local taxes. Gifting shares in a French SCI may be simpler procedurally, though French gift tax provisions should be considered in parallel.
Common Misconceptions and Where Planning Goes Wrong
The most widespread misunderstanding I see in practice is the belief that a foreign company structure, particularly an SCI, "keeps the property outside UK IHT." That view may have been broadly accurate for a genuinely non-domiciled individual before April 2025. It is not accurate now for anyone who qualifies as a long-term UK resident.
A related misconception is that leaving the UK immediately removes the exposure. An individual can still keep long-term UK residence for up to ten tax years after they leave the UK. This is shorter if they have not lived in the UK for all the previous 20 years. Someone who has lived in the UK for 20 years and then retires abroad with their SCI still carries ten years of IHT exposure on their worldwide estate.
There is also a valuation trap that arises where the mortgage on the underlying property sits with the individual personally rather than with the company. Where a mortgage is held personally against a property owned through a corporate wrapper, the liability may not be deductible against the value of the shares in the same way it would be deductible against the value of the property on direct ownership. The mechanics depend on how the debt is structured and the precise terms under which the liability was incurred. This should be reviewed carefully where an SCI or SPV was set up informally and the financing arrangements were not given close thought.
The Gift with Reservation Issue
From 6 April 2025, if a donor is a long-term resident at the time of their death, and they have reserved a benefit in a gift of non-UK situs property immediately prior to the date of their death, the property is included in the donor's estate under the Gift with Reservation of Benefit provisions and their estate is subject to IHT at 40%. This applies regardless of whether the gift was made when they were a long-term resident or not.
For a holiday home, this is a live risk. Gifting shares in an SCI to children but continuing to use the property each summer for two weeks without paying a market rent will constitute a reserved benefit under HMRC's general approach. The gift will not stand and the shares will remain in the estate. This applies equally to arrangements made years ago when the donor was not yet a long-term resident: the question is the donor's status at death, not at the date of the gift.
The Double Tax Treaty Dimension: France, Spain, and Portugal
The UK has double taxation conventions for inheritance purposes with France, the Republic of Ireland, India, Italy, Pakistan, South Africa, Sweden, Switzerland, and the United States, among others. There is no comprehensive UK-Spain IHT treaty at present. For UK residents with Spanish property in an SPV, this means potential double exposure to both Spanish succession tax (where it applies at the regional level) and UK IHT, with credit relief available but not guaranteed to eliminate the full charge.
For French properties, the UK-France estate duty convention of 1963 (which remains relevant for IHT purposes in its updated form) generally gives France priority taxing rights on French-situs assets, including French-registered shares in an SCI. UK IHT credit is then available against the French tax paid. Where French succession tax rates for direct descendants are low (which they often are given French allowances for children), the credit may not fully extinguish the UK liability.
The interplay between the treaty and the corporate structure is genuinely complex. Whether the treaty applies to shares in an SCI or to the underlying property depends on how the specific treaty provisions are interpreted, and this is not settled uniformly across all UK treaties. Taking specific advice on the treaty position before making structural decisions is sensible, not optional.
Practical Steps for Owners of Foreign Properties in Corporate Structures
The IHT position for a UK long-term resident holding a foreign holiday home through an SCI or SPV in 2026/27 requires an honest assessment of several things.
First: confirm long-term resident status using the Statutory Residence Test properly across the last twenty tax years. Do not assume. The count is sometimes less straightforward than it appears if there were years of partial UK residence, work overseas, or periods of doubt.
Second: obtain a proper valuation of the shares (not just the underlying property). A qualified surveyor or accountant familiar with private company IHT valuations can model appropriate discounts. This alone can reduce the taxable value materially without any restructuring.
Third: review the financing structure. If loans sit personally against property owned corporately, assess whether they are deductible against the estate and whether restructuring those liabilities through the company would be beneficial.
Fourth: model the lifetime gifting options carefully. Gifting shares in the SCI or SPV as a PET, where market rent is then paid by the donor for any continued use, remains a legitimate planning route. The seven-year clock starts on the date of gift. For individuals in their fifties or early sixties, this is a realistic planning horizon. The French IFI (Impôt sur la Fortune Immobilière) implications and French gift tax position will need to be assessed in parallel with the UK planning.
Fifth: review the treaty position specific to the country of incorporation and property location. A UK-France position is different from a UK-Spain position, which is again different from a UK-Portugal position.
What this Widget is About: This interactive widget explains how UK Inheritance Tax applies in 2026/27 to foreign holiday homes held through overseas companies such as French SCIs or Spanish SPVs. It shows why the corporate structure no longer takes these assets outside the IHT net for long-term UK residents, and covers the key tests, valuation points, gift-with-reservation risks and double-tax treaty issues in plain English. Simply tap the tabs along the top to move between sections, open the expandable boxes for more detail, and use the quick calculator on the Rates tab for an illustrative figure. Created by Pro Tax Accountant, it is designed as a clear starting point for UK taxpayers who need to understand their position and decide what to review next.
2026/27 IHT Reference Points
For completeness, the key IHT figures for 2026/27 are unchanged from 2025/26:
Item | 2026/27 figure |
Nil-rate band | £325,000 |
Residence nil-rate band | £175,000 (where qualifying home passes to direct descendants) |
RNRB taper | Begins at estate value of £2,000,000 |
Standard IHT rate | 40% on estate above available nil-rate bands |
Reduced rate (charitable legacy) | 36% where 10% or more of net estate left to charity |
BPR on qualifying business property | 100% on first £1m combined BPR/APR; 50% on excess |
Shares in an SCI or SPV holding a holiday home are not a trading business. Business Property Relief does not apply. The full 40% rate applies to the value of the shares in the estate above available nil-rate bands.
The IHT400 return must be filed within twelve months from the end of the month of death. Tax is due within six months, with interest running from the six-month point. Overseas assets must be declared on the IHT400 with Schedule IHT417 for foreign assets, valued at date-of-death market value and converted to sterling at the spot rate. For shares in a foreign company, the valuation will require both a professional assessment of the company's net asset value and consideration of any applicable discount.
FAQS
Q1: How does holding a foreign holiday home through a French SCI affect UK Inheritance Tax exposure for a long-term UK resident?
Well, it's worth noting that for UK long-term residents (those resident here for 10 of the last 20 tax years), the shares in the SCI are generally treated as non-UK situs assets, but the underlying foreign property value still falls within the scope of UK IHT on your worldwide estate. In my experience with clients who own Provençal villas via SCIs, the key pitfall is double taxation risk, France may levy its own succession duties on the property, and while UK relief is available under the double tax treaty, claiming it requires careful valuation and timing. A practical tip: ensure the SCI's articles are reviewed to allow flexible share transfers without triggering local taxes unexpectedly. Always model the net effect, as the 40% IHT rate above thresholds can bite hard if not planned for.
Q2: Can using an SPV in a low-tax jurisdiction completely shield a Spanish holiday home from UK IHT for business owners?
In my experience advising self-employed directors with property portfolios, an offshore SPV doesn't fully eliminate UK IHT exposure if you're a long-term UK resident, the value attributable to the foreign property can still be caught. However, it can offer structuring advantages for succession, such as easier share gifting to family. Consider a hypothetical: a Manchester-based IT consultant owns a Costa del Sol apartment via a Gibraltar SPV. On death, UK IHT applies to the shares' value, but local Spanish rules might treat it as a direct inheritance, creating compliance headaches. The fix often involves lifetime gifting of shares as Potentially Exempt Transfers, combined with life cover to fund any tax. It's not a complete shield, so review annually.
Q3: What happens if I transfer shares in my foreign property-holding company to my children during my lifetime, does this trigger immediate UK IHT?
It's a common mix-up, but lifetime transfers of shares in an SCI or SPV are usually Potentially Exempt Transfers (PETs), falling out of your estate after seven years if you survive. That said, for high-earners with complex affairs, I've seen cases where reservation of benefit rules catch you if you continue using the property rent-free without proper documentation. Take a freelance graphic designer from Leeds who gifted SPV shares but kept holiday access: HMRC scrutinised it closely. Best practice is to pay a market rent or use co-ownership exemptions carefully, and always document arm's-length arrangements to avoid nasty surprises.
Q4: Are there specific pitfalls for self-employed UK taxpayers using SCIs for French holiday homes regarding ongoing reporting and IHT?
From advising many sole traders and limited company owners, the main edge case is the interaction with UK self-assessment and potential attribution of value. Even if the SCI handles local French taxes, you must consider if income or gains flow back, affecting your personal IHT position as a long-term resident. A real-world anecdote: a Birmingham plumber with a Loire valley cottage via SCI overlooked updating his will to reference the shares, leading to probate delays and extra French notaire fees. Practical checklist, keep detailed records of contributions, review shareholder agreements yearly, and factor in the nil-rate band strategically with other assets.
Q5: How do Scottish tax variations or residency nuances impact IHT on SPV-held overseas holiday homes for UK business owners?
While IHT rates and thresholds are UK-wide, Scottish clients often face different income tax bands that influence overall estate planning. In practice, a self-employed Edinburgh professional with a Tuscan villa in an SPV might see their higher-rate tax position affect cash flow for IHT planning tools like life insurance in trust. The key is the long-term residency test, which doesn't distinguish regions but does interact with your overall UK presence. I've guided clients to use trusts carefully post-2025 changes to maintain flexibility without losing excluded property benefits where applicable.
Q6: What should I do if my foreign holiday home SPV has mixed UK and overseas assets, does this complicate UK IHT calculations?
This is an edge case that trips up many. If the SPV holds both the holiday home and, say, UK investments, the UK-situs elements remain in scope regardless, while the foreign property value depends on your long-term resident status. Hypothetical: a London accountant with a mixed SPV for a Greek island home and some UK gilts, on death, the UK assets are fully exposed, and the foreign proportion needs apportionment. Tip: segregate assets into clean SPVs where possible for cleaner IHT treatment and easier administration.
Q7: Can business owners claim any reliefs or business property relief on shares in an SCI/SPV holding a pure holiday home?
Generally no, Business Relief typically doesn't apply to companies mainly holding investments or second homes, as opposed to trading businesses. In my 15+ years, clients hoping for this relief on a pure leisure property SPV are often disappointed. Instead, focus on gifting strategies or insurance. For a high-earning consultant in Bristol with a Portuguese villa via SCI, we structured gradual share transfers to adult children to utilise annual exemptions effectively, avoiding the full 40% hit later.
Q8: What are the double taxation implications when both the UK and the foreign country claim IHT on an SCI-held holiday home?
Double tax treaties (e.g., with France or Italy) provide relief, usually by crediting foreign tax against UK liability or allocating taxing rights. However, timing mismatches can occur. I've seen a client with a Spanish SPV where Spanish succession tax was paid first, but UK IHT calculation required detailed evidence of payment to claim unilateral relief. Actionable advice: engage cross-border specialists early and maintain bilingual valuations, it saves stress and money in the long run.
Q9: How does the long-term UK residency test specifically affect someone who acquired their SCI years ago but has since reduced UK days?
The 10-out-of-20 year test looks back, so even if you've cut back on UK time, prior residency can keep the foreign property in scope for up to 10 years after leaving. For a semi-retired business owner who spent heavy years in the UK building their portfolio, this "tail" period is crucial. Practical pitfall: assuming non-residency alone suffices, always calculate your exact position and consider accelerating gifts before the window closes.
Q10: Should I review my will and estate planning if my foreign holiday home is held via an SPV, and what quick wins are there?
Absolutely, wills need to specifically address company shares, not just the property, to avoid intestacy rules complicating foreign probate. A quick win I've recommended to many: place life assurance in trust to cover potential IHT on the SPV value, and consider deeds of variation post-death where beneficial. For a family-run business owner with a Croatian home via SPV, updating documents and discussing with adult children prevented family disputes and optimised allowances. It's proactive steps like these that deliver real peace of mind.
About the Author:
Adil Akhtar, ACMA, CGMA, FCMA (membership ID is 990250923) serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than eighteen years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants (registered with Companies House), combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
Disclaimer: This article sets out the general position under UK tax law for the 2026/27 tax year. The information has been checked against HMRC guidance and other official sources at the date shown above, and is reviewed when the rules change. Tax legislation is complex and outcomes depend on your individual circumstances, so this article is provided for general information and does not constitute advice on which you should act. Any figures or worked examples are illustrative. Before making any decision, obtain advice specific to your situation from a qualified professional. Pro Tax Accountant accepts no liability for loss arising from reliance on this article alone.
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