I have a client who settled assets into a trust in the USA in 1999. The client was a US citizen who came to the UK to work as a missionary. He has since died.
Am I right in thinking the US trust is excluded property for IHT purposes as he was not UK resident at the time the trust was set up?
If this is the case do I have to report it to HMRC?
I have to apply for a Grant of Probate as there is a property in the UK, but the value of this is below the NRB so on the assumption the US Trust is excluded there will be no IHT to pay.
Correctish. It will be excluded property provided he was not UK domiciled when the trust was established and funded (which sounds to be the case) and the assets were located outside the UK on his death. - s.48 IHTA.
I’m afraid I don’t recall the current reporting position but I suspect it can be ignored (I will now be proved wrong!). You may also need to check whether the existence of the trust takes you out of excepted estates into IHT400 territory.
If it is a US grantor trust with the deceased as sole trustee (as used to avoid US probate), you will also need to check it can be treated as a settlement for UK IHT - most give the settlor exceptionally wide powers.
Osborne Clarke LLP
Yes it is a US trust. The deceased was a sole trustee. He set it up whilst US domiciled so I think I can treat it is as excluded property for IHT, even if the settlor is the trustee.
I just don’t know how to report it, if at all.
Without wanting to seem pedantic, it is property that is excluded, not the trust, provided the settlor was non-domiciled when he or she added the property - subject, of course, to the changes proposed by the current Finance Bill if the settlor was born in the UK with a domicile of origin here.
The settlor was US domiciled and died before the latest Finance Bill. Do you know whether I need to report the excluded property to the revenue?
The more difficult question concerns interests in overseas ‘close’ companies and partnerships that own UK residential property (and loans financing such), to the extent they will cease to be excluded property with effect from 6 April 2017 when the current Finance Bill gets Royal Assent. Subject to that tricky aspect, which perhaps will not concern you, excluded property should not be reported to HMRC.
You haven’t said when the settlor died; relevant if he effectively had the
interest in possession.
Although excluded property need not be disclosed, its existence can affect
the deductibility of liabilities - see S.162A IHTA 1984.
Settlor died on 30th March 2017. The only liability in the estate is the funeral account.
HMRC weren’t interested during settlors lifetime, all tax was paid in the US. The only UK asset is ½ share in family home. Presumably I can use an IHT 205 to apply for probate?
Are you sure that you need a grant of probate [or whatever] at all?
You say the only UK asset is a half share in the family home, so the legal
title will of course be held by the [surviving] trustee(s) of land. Do they
insist on a formal grant in the circumstances?