Offshore Trust - Exit Charge post-2025

Assume a non-UK domiciled individual arrived in the UK in 2011 and created a Jersey trust in 2022 with a £10 million settlement for the benefit of their children, with both the settlor and their spouse expressly excluded from benefit.

Under the new legislation effective from 6 April 2025, the settlor is treated as having become LTR in from that date (by virtue of the 10/20 rule). Consequently, the trust will be classified as a relevant property trust from 6 April 2025 onwards for IHT purposes.

Suppose the settlor departs the UK at this point, having accrued approximately 14 to 15 years of UK residence. The IHT tail period will then expire by 2030 at the latest, prior to the first 10-year anniversary charge.

At the point when the tail period elapses and the trust exits the RPT regime, an IHT exit charge would arise. The key question is whether this exit charge would apply at a nil rate - on the basis that the trust entered the RPT regime with a zero chargeable value - or whether the charge will be calculated as 5/10ths of 6% of the value of the assets deemed to exit the relevant property regime.

Has anyone encountered this in practice?

Does the individual qualify for the transitional rule for non-domiciled (under common law) individuals who are non-resident in 2025/26 and would otherwise be LTR on 6 April 2025. In effect, the current rules will continue to apply from that date, so that the individual will be treated as being a LTR only if and for as long as they would have been deemed domiciled in the UK under the current rules.

No, the individual will be UK resident in 2025/26, hence the five year IHT tail.