Recognition of foreign structures

By Tolley in association with Elizabeth Norton at Russell-Cooke Solicitors

The following Trusts and Inheritance Tax guidance note by Tolley in association with Elizabeth Norton at Russell-Cooke Solicitors provides comprehensive and up to date tax information covering:

  • Recognition of foreign structures
  • Usufructs
  • Tontine
  • Life insurance
  • US revocable trusts
  • Renvoi - reference back

Foreign structures are often difficult to understand from a UK tax point of view. In order for them to be recognised it is necessary for them to be categorised as a trust, a company or a partnership.

Where it is necessary for a foreign structure to be analysed for the purposes of UK taxation, the structure will be considered in relation to the rules of the foreign territory in which it is governed. However it will then be necessary for UK tax law to be applied.

There are a number of different foreign structures that a practitioner may come across. Care should be taken in relation to them and cautious analysis made. Where appropriate, practitioners should also seek specialist advice.

Specific examples are considered below to give an illustration of the complexities that can arise in relation to the recognition of foreign structures.


Usufructs are common in France and provide an individual with the right to occupy a property which is owned by another person. The usufructuary will be responsible for the upkeep of the property. Scottish law also includes a form of usufruct: a ‘proper liferent’.

Whilst similar to an English life interest settlement and sometimes used to achieve the same ends, the two can have a very different legal effect. For example, a usufruct would generally be inalienable due to its connection to the person of the usufructuary. An English life interest, on the other hand, is connected to the life of the life tenant rather than their person and is thus alienable.

For UK CGT purposes a French usufruct is an interest in land and not a settlement (Double Tax Treaty between the UK and France signed on 19 June 2008). Where a disposal occurs it would be necessary to value the usufructary’s interest relative to that of the bare owner. In France

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