IHTM47022 - Long-term UK residence test: Transitional provisions: Excluded property comprised in a settlement at 30 October 2024
Where excluded property (IHTM04251) under IHTA84/S48(3) or S48(3A) (鈥渟pecified excluded property鈥�) was comprised in a settlement immediately before 30 October 2024, this will not be subject to charges under the gift with reservation provisions听(IHTM14301)听or certain charges under the qualifying interest in possession regime听(IHTM16061)听in the circumstances explained below.听听
IHTA84/S48(3) covers foreign property comprised in a settlement听where the settlor was domiciled outside of the UK听(IHTM13000)听when the property became comprised in the settlement and IHTA/S48(3A) covers holdings in Authorised听Unit Trusts (AUTs) or a share听in an Open-Ended Investment Company (OEIC)听where the settlor was domiciled outside of the UK when the property became comprised in the settlement.听听
The property听must also be foreign property or a holding in an AUT or a share in an OEIC听at the time of the charge for the transitional provision to apply.听
However, specified excluded property听which was comprised听in a settlement immediately听before 30 October 2024 may听be subject to charges under the relevant property regime (IHTM42161) from 6 April 2025听(IHTM47052).听听
Qualifying interest in possession听
Specified excluded听property听comprised听in a qualifying interest in possession听settlement (IHTM47051)听before 30 October 2024 will not be subject to charge when the qualifying interest in possession听comes to an end听(IHTM16091)听or on the death of the qualifying interest in possession听beneficiary听(IHTM04043).听听听听
After the existing qualifying interest in possession听ends,听and for qualifying interest in possession听settlements made on or after 30 October 2024, the settlement will be subject to the new long-term residence rules听relating to the settlor听and/or the听current beneficiary,听which you will find at (IHTM47050).听听听
Gifts with reservation of benefit听
Specified excluded property听comprised听in a settlement immediately听before 30 October 2024听will not be subject to the gift with reservation of benefit rules (IHTM14396).听听听
Limitations听
As UK situs assets,听or indirectly owned UK residential property (IHTM04311),听comprised听in a听settlement are听not specified excluded听property, they will not benefit听from this transitional protection, even if they are later sold and become foreign situs.听听
Additions听to existing settlements听(IHTM16074) or new settlements made on or after 30 October 2024 cannot benefit听from transitional protection, so that听foreign settled property will be excluded property (or not) in听accordance with听the new long-term residence tests听that relate to the settlor听(IHTM47050).听听
The exemption is limited to property which meets the criteria听of being specified excluded property as at听30 October 2024 and is also foreign property or a holding in an AUT or a share in an OEIC at the time of the charge.听听However, if听听there is property in an existing settlement which is specified excluded property as at听30 October 2024听and meets the other conditions at the time of charge, an addition of property to the settlement after 30 October 2024 which cannot itself meet that criteria will not prevent the original property benefitting from the transitional protection.听Also, if听property qualified as specified excluded property as at 30 October and part of it meets the conditions at the time of charge and part of it doesn鈥檛, the part which meets the conditions will benefit from the transitional听protection; the part which doesn't听meet the criteria will not prevent the qualifying part from benefitting.听听
Example听
Trevor is UK domiciled and was resident in the UK all of听his life until becoming and remaining non-resident听from听2022-23. He put 拢100,000 and听a foreign听property听into a settlement he made on 31 December 2020.听听听
The听foreign听property听in Trevor鈥檚 settlement did not qualify as excluded property on 30 October 2024 because he was UK domiciled at the time the property became comprised听in the settlement.听听
If Trevor can benefit听from the settlement, the gift with reservation of benefit听provisions apply to treat the assets as part of Trevor鈥檚 estate if he dies before 6 April 2032听as he would still be long-term UK resident.听听
If Trevor鈥檚 settlement comprises听of relevant property, that regime will also apply until Trevor ceases to be听a听long-term UK resident.听 That means there is a charge on the ten-year anniversary on 31 December 2030.听听听听
From 6 April 2032, foreign property听in Trevor鈥檚 settlement would be excluded property, because听he is no longer long-term UK resident.听 The gift with reservation of benefit provisions would not听apply听on death or cessation of reservation whilst he was not a long-term UK resident.听
There will also be an exit charge (IHTM42110) when Trevor ceases to be long-term UK resident on 6 April 2032 in听respect of听the foreign听property ceasing to be relevant property.听听
Example听
Zhanti听is non-domiciled and was UK resident for 17 years, so was听deemed听domiciled under the pre-April 2025 rules.听 She became non-resident from 2024-2025听and does not return to the UK.听听
So, she became a long-term resident from 6 April 2025 but ceased to be a long-term resident from 6 April 2027听as a result of听the separate transitional rule听for residence (IHTM47021).听
If Zhanti听made a settlement before she became deemed domiciled, any specified excluded property comprised听in the settlement as at听30 October 2024 will听benefit听from the transitional provisions and will not be subject to the gift with reservation of benefit听provisions or charges under the qualifying interest in possession provisions, if applicable.听听听
If 窜丑补苍迟颈鈥檚听settlement has UK assets or assets within Schedule A1 IHTA 1984 (overseas property with value attributable to UK residential property) then such property will not benefit听from this treatment, even if it is later sold and becomes foreign听situs听
If 窜丑补苍迟颈鈥檚听settlement comprises听relevant property, that regime will apply to both UK and foreign听settled assets from 6 April 2025 until Zhanti听ceases to be long-term resident听on 6 April 2027.听
This means that, if there is a ten-year anniversary after 6 April 2025 while Zhanti听is a long-term resident, i.e.听2025-2026 and 2026-2027, then both听UK and foreign settled assets will be chargeable.听听
There will be an exit charge in relation to the non-UK assets (which become excluded property) when Zhanti听ceases to be long-term resident on 6 April 2027.听听听听
Example听
Arnold is non-domiciled and settled a trust in 1990 with non-UK property, before he became deemed domiciled.听 The Arnold Trust gave an interest in possession to Chidi, who has always been UK domiciled and resident.听 On Chidi鈥檚 death, there is an interest in possession for his sister Linda.听听听听
The non-UK property in the Arnold settlement was excluded property as at听30 October 2024 and so benefits听from the exemption from qualifying interest in possession听charges whilst Chidi鈥檚 interest in possession subsists.听听
Chidi dies on 8 July 2026 and Linda鈥檚 interest in possession begins.听 The protection from qualifying interest in possession听charges applies so that the value of the foreign听trust property is left out听of Chidi鈥檚 estate on death.听听听听
Linda鈥檚 interest is not a qualifying interest in possession听so that the non-UK settled property will then be subject to the relevant property听regime,听and a 10-year anniversary charge will arise in 2030 unless it is听excluded property under the new rules, which will depend on Arnold鈥檚 long-term residence status听at that time.听
Example听
Flora made a settlement听from which she could benefit听in 1998听when she was not domiciled in the UK.听 The property in the settlement is a house in Spain.听 Flora has lived in the UK since 2000.听
At听30 October 2024, the settled property is specified听excluded property.听
On 7 March 2025, the Spanish property was sold and the 500,000 euro听sale proceeds were placed in a Spanish bank account.听 On 8 June 2025, 100,000 euros was moved to a UK sterling account with a UK bank.听听听
On 18 August听2026, Flora added US shares worth $700,000 to the trust.听
Flora dies on 7 July 2029听and is still a long-term UK resident.听
The UK sterling bank account cannot benefit听from the transitional provision听because, at the time of Flora鈥檚 death, it was not foreign property or invested in an AUT or OEIC.听 The bank account will be subject to the gift with reservation of benefit provisions and treated as part of Flora鈥檚 estate.听
The US shares also cannot benefit听from the transitional provision as they were not settled property as at听30 October 2024.听The bank account will be subject to the gift with reservation of benefit provisions and treated as part of Flora鈥檚 estate.听
However, the Spanish bank account with the remaining 400,000 euros can benefit听from the exemption as听it was听specified excluded听property at听30 October 2024 and was听foreign settled property at the time of Flora鈥檚 death.听 So,听the Spanish bank account is not subject to the gift with reservation of benefit provisions at Flora鈥檚 death.听
If some of the 400,000 euros had been invested in UK shares听before Flora鈥檚 death, but these were sold and the proceeds returned to the Spanish bank account听before 7 July 2029, the transitional provision would still be available, as the requirement is only that the property was foreign property (or an AUT or OEIC) at 30 October 2024 and the date of death.