Trust assets temporarily in the UK

Trusts Discussion
1

Hi,

I am looking for guidance with regard to IHT exposure in the following circumstances:

  • Deceased person acquired a domicile of choice outside of the UK.
  • On death, left part of their estate (consisting of overseas cash, stocks and shares) to a discretionary will trust.
  • Trustees of the discretionary will trust will be UK resident.
  • Intention is for the estate administrators to transfer the assets to the UK lay trustees, encash the stocks and shares to realise Gains etc (‘cleansing’ the capital gains since the date of death), and reinvest the proceeds in an offshore insurance bond, from which withdrawals will be taken in future and paid to UK beneficiaries.

The question is with regards to the temporary passage of the assets into the UK - will this create IHT consequences (such as exit charges)?

2

If UK situs capital assets are being distributed then there is potential for an exit charge.
Also bear in mind that the excluded property rules will all be changing come 6 April.

3

Assuming non-UK dom (and not deemed dom; note also position re a settlor who was formerly domiciled resident) status for the deceased and with all assets non-UK situs at the date of the settlement creation, the trust qualifies as an excluded property trust (excluded property is not relevant property). Accordingly, no IHT exit charges should arise.

UK residence status of the trust has no impact on the IHT treatment.

With respect to “excluded property” trusts (from April 2025) Labour have commented as follows:
“The government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT. The government intends to change the way IHT is charged on non-UK assets which are held in such trusts, so that everyone who is in scope of UK IHT pays their taxes here. The government recognises that trusts will already have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes. Confirmation of these new rules and their detailed application, including transitional arrangements for affected settlors, will be published at Budget, following external engagement”.

Malcolm Finney

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