Inheritance Tax and excluded property added to and transferred between trusts
Published 11 July 2019
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This publication is available at https://www.gov.uk/government/publications/inheritance-tax-and-excluded-property-added-to-and-transferred-between-trusts/inheritance-tax-and-excluded-property-added-to-and-transferred-between-trusts
Who is likely to be affected
This measure will affect UK domiciled or deemed domiciled individuals who have created an offshore trust when they were previously non-UK domiciled and have subsequently made additions of assets to that trust.
General description of the measure
This measure will legislate to provide that additions of assets by UK domiciled or deemed domiciled individuals to trusts made when they were non-domiciled cannot be excluded property and are therefore within the scope of Inheritance Tax. The measure will also legislate to provide that transfers between trusts are subject to additional excluded property tests.
Policy objective
This measure clarifies that where offshore assets are held in trust, whether or not the property has excluded property status and is within the scope of Inheritance Tax is dependent on the domicile status of the person adding the assets to the trust rather than the domicile of the settlor at the time when the settlement was first created. It also introduces new tests to determine the excluded property status of property transferred between trusts.
Background to the measure
This measure was announced at Autumn Budget 2018.
Detailed proposal
Operative date
In relation to the excluded property status of property added to trusts, this measure will have effect from the date of Royal Assent for Finance Bill 2019 and will apply as if it had always been in effect in relation to charges arising on or after that date.
In relation to the new tests affecting the excluded property status of property transferred between trusts this measure will have effect from the date of Royal Assent in relation to property transferred between trusts on or after that date.
Current law
The current treatment of excluded property in a trust for Inheritance Tax purposes is set out in Section 48 Inheritance Tax Act 1984. In particular section 48(3) Inheritance Tax Act 1984 provides that where property comprised in a settlement is situated offshore that property will be excluded property unless the settlor was domiciled in the UK at the time the settlement was made. Section 81 Inheritance Tax Act 1984 contains rules relating to property transferred between trusts. Further rules regarding the excluded property treatment of property transferred between trusts are included in Section 82 Inheritance Tax Act 1984.
Proposed revisions
Legislation will be introduced in Finance Bill 2019-2020. Clause 1 amends Inheritance Tax Act 1984 so that, where property is added to a settlement, the domicile of the settlor will be considered for the purposes of the excluded property rules at the time of the addition rather than at the time the settlement was first created. In addition, Clause 2 of the proposed legislation will introduce new tests to determine whether property transferred between trusts is excluded property which focus on the domicile status of the settlor at the time of the transfer.
Summary of impacts
Exchequer impact (£m)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure will impact UK domiciled individuals who have made, or will, make additions to a trust that was created when they were non-UK domiciled. This measure ensures that where an individual is domiciled in the UK, their worldwide assets, including those that they have put into a trust, are subject to Inheritance Tax. This measure could impact family formation, stability and breakdown as some individuals and their households could have less disposable income, which could affect their lifestyle.
Equalities impacts
This measure will impact those groups with protected characteristics who are now UK domiciled and were previously non-UK domiciled.
Impact on business including civil society organisations
There is no impact on businesses or civil society organisations as this measure only affects individuals
Operational impact (£m) (HMRC or other)
There are negligible operational impacts and minimal additional costs for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected on tax returns.
Further advice
If you have any questions about this change, please contact Jane Romilly Hague on Telephone: 03000 547038 or by email at: jane.romillyhague@hmrc.gov.uk.