Excluded Property Trusts and Exit Charges

We have a case whereby a non-resident trust was created by a non-UK domiciled settlor in 2000, which owns a number UK properties via offshore companies.

On this basis as the trust assets held are outside the UK they were regarded as “excluded property” and were therefore not subject to IHT exit and principal charges.

This was until the changes which were introduced which brought such assets within the relevant property regime on 6 April 2017.

Given this consideration is being given to terminating the trust, but the IHT exit charge needs to determined.

I am somewhat at loss with this.

• Would the rate applied be the rate at the last 10 year anniversary in 2010 when trust was regarded as an excluded property trust? On this basis as the rate was Nil then no IHT exit charge would arise; or

• Would the rate applied be calculated based on the value of the trust fund at the date of the last 10 year anniversary in 2000 prorated between when the property was not relevant property up to 6 April 2017 and then relevant property thereafter? or

• Something else?

Any thoughts on this together with reporting requirements would be greatly appreciated.

Many thanks.

Andrew Magilton

The nil rate which would have applied at the last 10 year anniversary in 2010 due to excluded proper status is not the rate used to calculate the exit charge following the conversion from excluded to relevant property on 6.4.17.

For present purposes the previous ten year rate needs to be recomputed as if the excluded property had been relevant property at that date the value used being that on 6.4.17.

The rate is then adjusted to take account of the fact that the property was not relevant property between the date of the last ten year anniversary and 6.4.17.

Malcolm Finney

notwithstanding it may not be appropriate to sell the company shares - if the trustees did sell the shares and re-invested the proceeds into authorised OEICs or Unit Trusts prior to distribution would IHTA 1984 s65(7A) mean no exit charge?
The “relevant property” proceeds having been reinvested into excluded property?
Apologies if this does not add to the discussion but I am curious

Barry Foster
Utmost Wealth

The proceeds from the disposal of the shares in the overseas companies (and the property representing the same) will become excluded property if reinvested in the manner described, but not until two years have elapsed - para 5 Sch A1 IHTA. NB the shares in the overseas companies would become excluded property immediately (I think!) if the properties were to be sold, instead of the shares.

Paul Davies