IHTM47052 - Long-term UK residence test: Foreign settled property: Relevant Property

Subject to various exemptions, property comprised听in a settlement where there is no qualifying interest in possession听(IHTM16061)听will be relevant property.听听听

Whether foreign property comprised听in the settlement is excluded property (IHTM04251)听depends on the date of the chargeable event and the circumstances of the settlor:听

  • Where a chargeable event occurs before听6 April 2025, foreign settled property will be excluded property听where the settlor听was domiciled (IHTM13000) outside the UK at the time when the property (IHTM04030) became comprised听in the settlement.听

  • Where the chargeable event occurs听on or after 6 April 2025, whether听foreign settled property is听excluded property听depends on whether the settlor听is alive at the date of the chargeable event.听

  • For chargeable events on or after, 6 April 2025 if the settlor听was alive at the date of the chargeable event, foreign settled property will be excluded property if the settlor听was not a long-term UK resident (IHTM47000) at that date.听

  • For chargeable events on or after 6 April 2025, if the settlor had died before the date of the chargeable event, then:听

    • If the settlor died on or after 6 April 2025, foreign settled property will be excluded property if the settlor was not a long-term UK resident immediately听before their death.听

    • If the settlor died before听6 April 2025听foreign settled property is excluded property where听the settlor was domiciled outside听the UK at the time when the property听became comprised听in the settlement.听听听

There will be no chargeable transfer听when the settlement is created or听when听additions听are听made by the settlor (IHTM42075)听if foreign property is added to a settlement at a听time:听听

  • when the settlor听is not long-term UK resident听(from 6 April 2025) or听

  • was neither domiciled (IHTM13000), or deemed听domiciled听(IHTM13024)听in the UK (before 6 April 2025)听听

as the transfer听will be of excluded property听(IHTM04260).听

There will be a charge on any ten-year anniversary (IHTM42081) which occurs when a settlor听is a long-term UK resident.听

There will also be a proportionate charge (IHTM42110) when a settlor听ceases to be long-term UK resident, because at that point foreign settled property will cease to be relevant property.听听

Examples听

Example 1听

Anika听made a settlement of foreign assets in 2004 when she was non-UK domiciled.听 Anika died in 2012.听 The long-term residence test is not relevant to Anika鈥檚 settlement as she is a settlor who died听before 6 April 2025, and so the property is excluded property because she was non-domiciled at the time the assets became comprised听in the settlement.听

Example听2听

Marianne is non-domiciled and became resident in the UK in 2021-22. In 2023 she settled non-UK assets in the Marianne Discretionary Settlement for her children and grandchildren.听听

  • As Marianne was not UK domiciled or deemed听UK domiciled when听she created the settlement, there was no entry charge in 2023.听听

  • The first ten-year anniversary of the settlement is in 2033, by which time Marianne is a long-term UK resident and so there is a charge of up to 6% of the value of the assets comprised听in the settlement. The charge will reflect the number of years that the property was relevant property. Marianne was long-term resident from 6 April 2031 so 2/10 years, applied to the maximum 6% this would result in a rate of up to 1.2%.听听

  • Marianne dies in 2040, when she is still a long-term resident. As Marianne cannot benefit听from the settlement, there is no charge on her death, regardless of whether or not听the transitional relief applies听(IHTM47022).听听

  • Future ten-year anniversaries and exits from the settlement after Marianne鈥檚 death are subject to IHT charges of up to 6% on each occasion because she was a long-term resident at her death.听听

Example听3听

Jim creates a settlement with 拢10m non-UK assets in November 2024听when he is non-UK resident听and non-UK domiciled. He becomes UK听resident in 2027 and becomes听a long-term UK resident in听2037. Jim leaves the UK in 2050.听听

  • When the settlement was created in November 2024, the test for excluded听property was whether non-UK assets were settled by a person who was non-UK domiciled at the time the assets became comprised听in the settlement.听 There is therefore no chargeable event when the settlement was听created as Jim is not domiciled in the UK.听听听听

  • There is no charge on the first ten-year anniversary of the settlement in 2034 as Jim is not a long-term UK resident听at that time.听听听听

  • There will be a ten-year anniversary charge of up to 6% of the value of the assets comprised听in the settlement in 2044 as Jim is now a long-term UK resident.听 However, the rate will be reduced to reflect the period during which the assets in the settlement were not relevant property.听Jim has been long-term resident for 7/10 years,听so听applied to the maximum 6% this would result in a rate of up to 4.2%.听听听听

  • There will be a ten-year anniversary charge in 2054 (again up to 6% of the value of the assets in the trust).听Jim remains听long-term UK resident, despite having become non-resident in 2050,听as he still satisfies the 10 out of 20 test听(IHTM47000)听听

  • There would be a听proportionate听charge on 6 April 2061 when Jim ceases to be a long-term听UK听resident, because at that point he has ten consecutive years of non-residence.听听听听

  • If Jim is able to听benefit听from the settlement, this would be a gift with reservation of benefit (IHTM14301).听听Jim will not be able to benefit听from the transitional relief (IHTM47060) because non-UK assets were not settled before 30 October 2024. The property comprised听in the settlement would be treated as part of his death estate if he died whilst he was long-term UK resident.听