IHTM16162 - Foreign Property in a trust: when is foreign property excluded property?

In order to qualify as excluded property (IHTM02451) there are two tests, both of which must be satisfied:

1. The settlor must have been domiciled outside the UK at the time the settlement was made (or at the date of any additions, if the added property is material). ( IHTM13000) Deemed domicile under IHTA84/S267 applies for this purpose. ( IHTM13024)
   
2. The property in question must be situated outside the UK ( IHTM27071) at the date of the charge to IHT.

This provision does not apply to a reversionary interest in the property, in which case it is the domicile of the current owner of that interest that is in point.

In addition, it became clear that UK-domiciled individuals were exploiting this exemption by purchasing interests in pre-existing trusts originally settled by non-UK –domiciled settlers. IHTA/S48 (3B) was introduced by the Finance Act 2006 to prevent this. This provides that property is not excluded property if:

• An individual is, or has been, beneficially entitled to an interest in possession in the property at any time
• The individual is, or was, domiciled in the UK at the time, and
• Their entitlement arose directly or indirectly as a result of a disposition for consideration in money or money’s worth made on or after 5 December 2005.

It does not matter whether the consideration was given by the individual with the interest in possession or by someone else; and cases in which an entitlement arose indirectly include entitlements arising under a will or the law relating to intestacy.