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HMRC internal manual

Inheritance Tax Manual

Government securities in foreign ownership: relevant property trusts and FOTRA gilts

Where, immediately before the chargeable event concerned, FOTRA gilts (IHTM04291) are comprised in a settlement in which no qualifying interest in possession subsists, the securities will be excluded from the Inheritance Tax charge on the event if it is shown that

  • all known persons for whose benefit any of the settled property (or income from it) has been or might be applied, and
  • any person who is or might become entitled to an interest in possession in the settled property,

are not resident and, for events before 6 April 2013, not ordinarily resident (IHTM04295) and, for events before 6 April 1998, not domiciled (IHTM04296) in the UK.

The conditions require careful consideration. They refer to

  • ‘all known persons’: Accordingly, when considering the question of ordinary residence (and domicile) you should disregard the possibility that some (currently) unknown person, for example, an unborn child or future spouse or civil partner (IHTM11032) of an existing beneficiary might become a beneficiary in the future;
  • ‘the settled property’: So the application of the settled property and its income relate to all the property comprised in the particular settlement and not just to the exempt securities;
  • ‘has been or might be applied’: This means that you will need to consider both past and future or potential application of the property and its income.

However, in the case of Von Ernst and Cie S.A. v IRC [1980] 1 WLR 468 the Court ruled that any payment or potential payment from the settled property to an incorporated UK charity - to be used by the charity for its charitable purposes - would not be an application for the ‘benefit’ of the charity. Accordingly you should not deny the exclusion for exempt securities merely because a qualifying charity (whether incorporated or not) has received or might receive any of the settled property or income from it.