IHTM16162 - Foreign Property in a trust: when is foreign property excluded property?
Source: gov.uk (2025-04-07)


From 6 April 2025 the rules relating to the excluded property (IHTM04251) (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04251) status of foreign settled property (IHTM04271 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04271)) changed.

Chargeable events on or after 6 April 2025

Foreign property comprised within a settlement is excluded property (IHTM16162 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm16162)) at times on or after 6 April 2025 when:

the settlor is living and is not a long-term UK resident (IHTM47000 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47000))

at times after the settlor’s death:

if the settlor died on or after 6 April 2025, if the settlor was not a long-term UK resident at their death

if the settlor died before 6 April 2025 and was not domiciled in the UK when the property became comprised in the settlement.

A further condition applies to qualifying interest in possession settlements (IHTM16061 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm16061)) which provides that foreign property is only excluded property at times on or after 6 April 2025 if the life tenant is also not a long-term UK resident. This condition does not apply where the settlor died before 6 April 2025.

Transitional Rule

Certain qualifying interest in possession and gift with reservation charges do not apply if the settled property was excluded property under the old (pre-6 April 2025) excluded property rules as at 30 October 2024 (IHTM47022 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47022)).

Chargeable events before 6 April 2025

If the chargeable event arose before 6 April 2025, foreign property within a settlement was excluded property if the settlor was not domiciled (IHTM13000 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm13000)) in the UK at the time the property became comprised in the settlement (or in relation to property that was added later, at the time the addition was made). The deemed domiciled provisions under IHTA84/S267 apply for this purpose (IHTM13024 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm13024)). Further information on additions of property and value to existing settlements can be found at IHTM16074 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm16074).

Exceptions

See IHTM13061 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm13061) where the Settlor is a Formerly Domiciled Resident in a year of charge before 6 April 2025.

See IHTM04286 (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04286) for the rules relating to reversionary interests in the property.

Purchased life interests

It became clear that UK-domiciled individuals were exploiting this exemption by purchasing interests in pre-existing trusts originally settled by non-UK–domiciled settlers. IHTA/S48 (3B), now within IHTA/S48ZA(6), was originally introduced by the Finance Act 2006 to prevent this. This provides that property is not excluded property if:

An individual is, or has been, beneficially entitled to an interest in possession in the property at any time

At any time after 6 April 2025 while long-term UK resident or

At any time before that date while domiciled in the UK and,

Their entitlement arose directly or indirectly as a result of a disposition for consideration in money or money’s worth made on or after 5 December 2005.

It does not matter whether the consideration was given by the individual with the interest in possession or by someone else; and cases in which an entitlement arose indirectly include entitlements arising under a will or the law relating to intestacy.