Offshore Trusts - Inheritance Tax

Inheritance Tax

Non-UK domiciles resident in the UK can also create a trust to hold non-UK assets, which can remain outside the scope of inheritance tax (IHT) even if the individual subsequently becomes UK domiciled.  (Any non-UK domiciliary who has been resident in the UK for 17 of the past 20 years will be deemed to be UK domiciled for IHT purposes and, once they are UK domiciled, their worldwide estate will come within the scope of UK IHT.)

This situation can be avoided by setting up an excluded property trust, and transferring certain assets into the trust, prior to the individual becoming a UK domicile.

Any non-UK assets transferred to the trust will be outside the scope of IHT. IHT may also be avoided on UK property if the property is transferred to an offshore company which is itself owned by the trust. Again, the transfer must take place before the individual is deemed to be domiciled in the UK. The key to this structure is that the trust owns shares in an offshore company, which is a non-UK asset and, as such, excluded from the scope of UK IHT.

It should be noted that, unless the trust is an excluded property trust for IHT purposes, IHT charges will arise at six per cent every ten years on the value of the trust assets. 

The information above should not be construed as the provision of tax advice.  We are not qualified to provide tax advice and recommend that you seek advice from a professional tax adviser.  Levels and bases of tax referred to above are those applying under legislation in force at the time of writing the relevant article.  These levels and bases may change and the availability and value of any tax relief will depend on your individual circumstances.