I would welcome views on an issue that I had not previously come across.
From 6 April, the new Sch 1A IHTA will apply to shares in foreign companies holding UK residential property.
Assuming the (once) typical structure of an offshore discretionary excluded property trust, offshore company, UK residential property:
- The shares will not be excluded property under Sch 1A paras 1 and 2 and therefore relevant property.
- If the trustee sells the company to a third party for cash, the proceeds are “relevant settled property” under para 5(5).
- Accordingly, para 5(4) disapplies s.65(7) IHTA in relation to the proceeds (the exemption from an exit charge where relevant property is moved abroad and becomes excluded property).
- This appears to mean that:
(a) if the cash proceeds are received abroad (excluded property), the relevant property in the trust has decreased and there will be an exit charge in relation to the value of the company under s.65(1); and
(b) if the cash proceeds are received in the UK, there is no immediate decrease in the value of relevant property so no immediate exit charge but the disapplication of s.65(7) is permanent so there is an exit charge if that cash (or any property derived from it) is ever removed from the UK.
The first surprise to me (which may be misplaced) is the idea of an exit charge on a sale but I suppose it is possible that the rule always applied if an excluded property trust sold a UK asset for non-UK consideration. The greater surprise is the idea that an excluded property trust which receives UK situate proceeds will never be able to remove them from the UK without an exit charge (save of course for immediately after an anniversary).
Does this sound correct?
Andrew Goodman
Osborne Clarke LLP