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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Government securities in foreign ownership: introduction

‘Government securities’ is a term we use to describe securities issued by the Treasury. These are also known as ‘gilts’ The Treasury can issue, and has issued, securities with the condition that they are exempt from UK taxation so long as they are in the beneficial ownership of persons whose ordinary residence (IHTM27241) is outside the UK. Securities issued with this condition are known as FOTRA (Free Of Tax to Residents Abroad) gilts. Prior to 6 April 1998, FOTRA securities or gilts were issued with the additional requirement that the beneficial owner (IHTM04031) had to be domiciled (IHTM27000) as well as ordinarily resident outside the UK. The domicile requirement continues to apply to FOTRA securities that were issued before 29 April 1996.

Under FA1940/S60(1), The Treasury has powers to modify the operation of the general exemption from taxation specified in the terms of issue of the security concerned. This power was exercised so that with effect from 6 April 1998 all gilts were deemed to be FOTRA gilts. So, for deaths and other chargeable events on or after 6 April 1998, all government securities are excluded property (IHTM04251) for IHT purposes by reference only to the ordinary residence of the beneficial owner.

The only exception is 3½% War Loan, where the additional domicile condition continues to apply to deaths or other chargeable events on or after 6 April 1998.

So, in summary,

  • FOTRA securities issued before 29 April 1996 will be exempt provided the beneficial owner is both domiciled and ordinarily resident outside the UK.
  • 3½% War Loan 1952 or after will be only be exempt if the beneficial owner is both domiciled and ordinarily resident outside the UK, even if the chargeable event is after 6 April 1998.
  • All other government securities issued before 6 April 1998 without FOTRA conditions will be exempt from that date provided the beneficial owner is ordinarily resident outside the UK. Domicile is no longer relevant.
  • All other government securities issued after 29 April 1996 will be exempt provided the beneficial owner is ordinarily resident outside the UK. Domicile is no longer relevant.

The main factors for determining the exclusion (or otherwise) of Government securities are

  • the type and ownership (IHTM04294) of the security which is deducted as excluded property,
  • the ordinary residence (IHTM04295) of the beneficial owner of the relevant security or, where the security is settled property, that of the beneficiary or beneficiaries concerned, but
  • for deaths and chargeable events prior to 6 April 1998, the domicile (IHTM04296) of the person(s) mentioned above must also be outside the UK.