Free of tax to residents abroad (Gilts)

Afternoon all

I have a client who is UK non-resident but most likely still UK domiciled and would certainly be a Formerly Domiciled Resident following the changes last April.

He is looking to settle a substantial amount of UK Gilts onto a UK Discretionary Trust where his UK based brother and his brother’s family will be the discretionary beneficiaries. The settlor will be excluded from benefiting.

These particular type of gilts are considered excluded property held by a non-resident and will not trigger a 20% inheritance tax entry charge when transferred into a relevant property regime trust.

Once in the trust the excluded property status will cease as the beneficiaries are UK resident and 10 year anniversary charges and exit charges will be applicable as the settlor was domiciled in the UK and the trust is UK based with UK based assets.

Now my question - does anyone know whether the trust would remain protected against a full inheritance tax charge on the settlor’s death if at that time of his death he had returned to the UK as a Formerly Domiciled Resident and was considered again domiciled in the UK.

My feeling is that this is not a traditional “excluded property trust” as the settlor still considers himself UK domicile even now and the excluded property nature has only been achieved by the nature of the assets transferred into the trust. Therefore I believe that the settlor’s later death would not cause any issues to the trust.

Any help would be welcome.


James Ward

Surely the only reason a ‘full’ (death rate) IHT charge would arise would be if the settlor died having reserved a benefit in the trust. If, as you say, the settlor is to be excluded from benefit then that is not a possibility.

Paul Davies