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home | Non Domicile Tax Q&A | Inheritance Tax and Excluded Propert . . .

Inheritance Tax and Excluded Property Trust


Question:

If an individual is non dom and non resident and are very keen on returning to UK. If they set up an Excluded Property Trust for all of their offshore assets including Main residence & Investment bonds, would the assets be free of IHT once they are back in the UK as residents. Furthermore can they still have access to the assets within the trust should they need to sell the property held within the trust. On death what are the IHT implications should the beneficiaries of wish to encash bonds and cash.

Answer:

Yes the main reason for making an excluded property trust would be to avoid the risks of you obtaining a UK actual or deemed domicile.

Trust property is excluded property (ie outside the scope of UK IHT) if:

  • You are non UK domicile at the time you made the settlement to the trust, and
  • The assets aren't not situated in the UK

    So provided the assets are offshore the only issue is whether you are non domiciled when the trust was set up. The assets would remain excluded property if you acquired UK residence or UK domicile in the future.

    The individuals would be able to have access to the assets etc although clearly any distributions etc could be subject to UK tax. There are numerous anti avoidance rules that would need to be considered in relation to transfers to the settlor or beneficiaries (in terms of both income tax & capital gains tax). We've covered these in various articles on the site.

    There won't be IHT implications on death (if the trust is an excluded property trust) however there could be income tax or CGT on the distribution of assets.

    About the Author

    Lee Hadnum The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).

    He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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    Disclaimer

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    i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.

    ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.

    These Notes (and Disclaimer) do not affect your statutory rights in the United Kingdom.