Excluded property: introduction
The term ‘excluded property’ is a technical term and covers certain types of property (IHTM04030) which, subject to certain conditions, are outside the charge to Inheritance Tax (IHT). The exclusion applies to
- property transferred in the lifetime, IHTA84/S3 (2),
- owned by individuals at death, IHTA84/S5 (1), and
- property held in a settlement, IHTA84/S53 (1) and IHTA84/S58 (1)(f).
Excluded property is different from the property comprised in an exempt transfer. Only an exempt transfer is relevant for the purposes of IHTA84/S36 to S42 for grossing up (IHTM26121), interaction (IHTM26101) and so on.
If you are dealing with a deduction for ‘excluded property’, your investigation will in the main need to consider one or more of the following
- the title to and nature of the property concerned, e.g. whether it is owned outright or settled, or whether it is a reversionary interest (IHTM04281)
- the locality (IHTM27071) of the property
- the identity of the person beneficially entitled (IHTM04031) to the property
- that person’s domicile (IHTM13000) and/or ordinary residence (IHTM13025) where appropriate, and
- in the case of settled foreign property, the settlor’s domicile when he made the settlement (IHTM16042).
You should establish these or any other relevant facts by reference to the time when the transfer or disposition (IHTM04023) - which would otherwise be within the scope of IHT - was made, unless the legislation points you to any different time.
On 6 April 2014, Adrian transferred US $500,000 to his daughter. He died in 2016 domiciled in the UK.
In determining whether the lifetime transfer was of excluded property, you should establish the locality of the cash transferred and Adrian’s domicile as at 6 April 2014. Anything that happened to the cash afterwards (for example, its investment in the UK) or change in Adrian’s domicile does not normally matter.