IHTM47053 - Long-term UK residence test: Foreign settled property: Special Trusts
Source: gov.uk (2025-04-07)


Special trusts (IHTM04098 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04098)) are given specific or favourable IHT treatment if and for so long as their terms meet the requirements set out in the legislation.

In particular, the settled property is neither within the scope of relevant property charges nor is the property included in the estate of the beneficiary.

When those requirements are no longer met then a charge to IHT arises, and the rate of tax is proportional to the time that the settled property has been relieved from the usual trust charges.

The tax is charged at a flat rate, i.e. there is no nil rate band to take into account.

When charges do arise then the excluded property (IHTM04251 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04251)) status for non-UK assets will, like other forms of trust, depend on the date of the chargeable event and the settlor’s status:

Where the chargeable event occurs on or after 6 April 2025, whether foreign settled property is excluded property depends on whether the settlor is alive at the date of the chargeable event.

For chargeable events on or after 6 April 2025, if the settlor was alive at the date of the chargeable event, foreign settled property will be excluded property if the settlor was not a long-term UK resident (IHTM47000 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47000)) at that date.

For chargeable events on or after 6 April 2025, if the settlor had died before the date of the chargeable event, then:

If the settlor died on or after 6 April 2025, foreign settled property will be excluded property if the settlor was not a long-term UK resident immediately before their death.

If the settlor died before 6 April 2025 foreign settled property is excluded property where the settlor was domiciled outside the UK at the time when the property became comprised in the settlement.

In contrast to other types of trust, excluded property for special trusts does not deny the charge itself. Instead, it reduces the rate of tax that is charged (IHTM42802 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm42802)) because quarters where the property is excluded property are to be ignored in determining the number of quarters in the relevant period.

Example

Property in a special trust becomes subject to a charge after 85 complete quarter years.

For the first 40 quarters, the settled property did not contain any assets in any assets in the UK and was excluded property because the settlor was not long-term UK resident. The settlor remained not long-term UK resident for quarters 41-56 and then became long-term UK resident.

To calculate the flat rate:

Quarters 1-40 0.25% x 0 0%

(all quarters excluded property)

Quarters 41-800.20% x 24 4.8%

(16 quarters excluded property, 24 not excluded property)

Quarters 81-850.15% x 5 0.75%

(All 5 quarters not excluded property)

Total: 5.55%

So, if the settled property had a value of £1 million at the date of the charge then £55,500 is payable by the trustees.