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HMRC internal manual

Inheritance Tax Manual

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 who are not resident (IHTM13025) in the UK. Securities issued with this condition are known as FOTRA (Free of Tax to Residents Abroad) gilts. 

Before 6 April 2013, FOTRA securities were issued with requirement that, the beneficial owner (IHTM04031) had to be ‘ordinarily resident’ (IHTM13025) outside the UK. This requirement still applies to FOTRA securities acquired before that date. 

Before 6 April 1998, FOTRA securities or gilts were issued with the additional requirement that the beneficial owner had to be domiciled (IHTM13000) as well as ordinarily resident outside the UK. The domicile requirement still applies to FOTRA securities that were issued before 29 April 1996.

Under FA40/S60 (1), the Treasury has powers to modify the terms of issue of a Government security so as to change the scope of the exemption. These powers were 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 Inheritance Tax purposes if the beneficial owner was ordinarily resident outside the UK (or, for securities acquired after 6 April 2013, simply resident outside the UK).

The only exception is 3½% War Loan, where the additional domicile condition still applies 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 if 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 government securities issued without FOTRA conditions before 6 April 1998 will be exempt from that date provided the beneficial owner is ordinarily resident outside the UK. Domicile is relevant only for 3½% War Loan;
  • all government securities issued between 29 April 1996 and 5 April 2013 will be exempt provided the beneficial owner is ordinarily resident outside the UK. Domicile is relevant only for 3½% War Loan;
  • all government securities acquired on or after 6 April 2013 will be exempt provided the beneficial owner is resident outside the UK. Domicile will be relevant only for any future issue of 3½% War Loan.

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.