UK taxation of offshore trusts—inheritance tax
Produced in partnership with Jenny Wilson-Smith and Emma Haley of Boodle Hatfield
UK taxation of offshore trusts—inheritance tax

The following Private Client guidance note Produced in partnership with Jenny Wilson-Smith and Emma Haley of Boodle Hatfield provides comprehensive and up to date legal information covering:

  • UK taxation of offshore trusts—inheritance tax
  • Excluded property trusts (EPTs)
  • Non-excluded overseas property
  • EPTs created by formerly domiciled resident
  • Relevant property regime (RPR)
  • Qualifying interest in possession (IIP) trusts
  • Gifts with reservation of benefit (GROBs)
  • UK excluded property
  • Location of assets
  • Excluded property and debts

An offshore trust is any non-UK resident trust. The liability of trustees of an offshore trust to UK inheritance tax (IHT) is not dependent on the residence status of the trust. Both UK and offshore trustees will generally be liable to IHT on all UK trust assets. In addition trustees will be subject to IHT on foreign trust property unless the property qualifies as excluded property.

Excluded property trusts (EPTs)

An excluded property trust (EPT) is defined by section 48(3) of the Inheritance Tax Act 1984 (IHTA 1984) as any trust (whether UK or offshore) that was created by a settlor who was non-UK domiciled at the time the trust was made and contains non-UK assets. Foreign assets of an EPT are outside the UK IHT net regardless of the residence or domicile status of the beneficiaries with two important exceptions, which are described further below, as follows:

  1. non-excluded overseas property, and

  2. EPTs created by formerly domiciled residents

In contrast, all trusts assets (wherever situated) of a trust (whether UK or offshore) made by a UK-domiciled settlor are within the UK IHT net.

For information on the concept of domicile and deemed domicile, see Practice Notes: Domicile, Deemed domicile for tax before 6 April 2017 and Deemed domicile for tax from 6 April 2017.

When a creating a trust over foreign property, timing