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HMRC internal manual

Inheritance Tax Manual

Reversionary interests: reversions and foreign issues

A reversionary interest (IHTM16231) is an item of property, (IHTM04030) separate from the property in which the interest subsists.

If the reversionary interest is itself situated (IHTM27071) outside the UK then, unless the interest is excluded by the main provision in IHTA84/S48 (1), you should proceed as follows

  • an unsettled reversion will be excluded property (IHTM04251) if the transferor is domiciled (IHTM13000) abroad, IHTA84/S6 (1),
  • a reversion which is itself comprised in a settlement (IHTM16042) will be excluded if the settlor of the reversion was domiciled abroad when the reversion was settled, IHTA84/S48 (3).

The situs or locality of a reversionary interest will normally be determined by the residence of the trustee(s) of the property to which the interest relates.

Example 1

Mr Richer transfers £100,000 to trustees in Spain on trust for Emily for life with remainder to his wife, Mrs Richer. Some years later, while Emily is alive, Mrs Richer dies domiciled in Spain and bequeaths all her estate (including her reversionary interest under her husband’s settlement) to her son Miles.

Because Mrs Richer’s is the settlor’s spouse, the reversion is not excluded from her estate by IHTA84/S48 (1) on her death. But the exclusion provided by IHTA84/S6 (1) applies as both the locality of the reversion and Mrs Richer’s domicile are outside the UK.

Example 2

The facts are as Example 1 and Miles sells the inherited reversion to Diego. The latter, also domiciled in Spain, immediately settles the purchased reversion on discretionary trusts.

The reversion now comprised in Diego’s settlement, although purchased by the settlor and therefore outside the protection of IHTA84/S48 (1), is (whilst it remains a reversionary interest) excluded property in view of Diego’s foreign domicile and the overseas residence of the trustees of Mr Richer’s settlement.