What is the background and principle involved?
Non-UK assets held by the trustees of an excluded property trust settled by a non-UK domiciled individual are generally outside the scope of Inheritance Tax (IHT). This means that non-UK assets such as investments or UK situated investments, excluding residential property, held in an offshore company remain free of IHT charges, even where the settlor becomes UK domiciled or deemed domiciled in the UK, at a later date.
HMRC has long since held the view, and contained in their published guidance, that trust additions made after the acquisition of a UK domicile or deemed domicile, will be construed as a separate trust, which cannot be excluded property. In effect, HMRC considered that every subsequent addition to an existing trust, following the acquisition of a UK domicile, constituted a new settlement and did not qualify for IHT protection under the excluded property rules.
How did the issues arise?
Largely because of the Barclays Wealth Trustees v HMRC case in 2015, which went up to the Court of Appeal in 2017 (where HMRC ultimately lost the case) and a general long standing disagreement over the technical issues above…
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You can also read Sean and Stuart’s original client briefing here.