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HMRC internal manual

Inheritance Tax Manual

Foreign element: foreign (excluded) property

Where a settlor with a domicile outside the UK sets-up a trust, any property situated abroad comprised in the trust is excluded from inheritance tax charges. See the details about foreign excluded property from IHTM04271

If all of the potential beneficiaries of a discretionary trust are not ordinarily resident in the UK, certain exempt Government securities are also excluded property. (IHTM16163)

Also refer to (IHTM16161 and IHTM16162).

All UK property in the trust remains chargeable. (IHTM27220)

Value for rate

Excluded property is not relevant property. The historic value of the excluded property must be included for rate purposes. (IHTM42085 and IHTM42114). However, bear in mind that if any of the excluded property has become relevant property (by becoming situated in the UK) then that part should no longer be included in the historic value. This applies even if the property is moved outside the UK again prior to the chargeable event.

Conversion to excluded property

IHTA84/S65 (7)and(8) provide that no proportionate exit charges arise if the

  • property ceases to be situated in the UK and becomes excluded property, or
  • UK funds are invested in exempt Government securities and become excluded property. (IHTM27250)

Moving between settlements

Anti-avoidance rules apply to deny exclusion from inheritance tax if assets are switched directly between settlements. (IHTM27251)

Reversionary interests

Foreign reversions are covered at IHTM04286