The measure
Non-UK domiciled individuals who settle foreign assets into trust ("excluded property" trusts) can normally benefit from an inheritance tax (IHT) exemption in relation to those assets. The Government is targeting IHT avoidance schemes where UK domiciled individuals acquire an interest in a pre-existing excluded property trust in an attempt to secure IHT benefits similar to those enjoyed by non-UK domiciled settlors.
The new measures will ensure that assets acquired by a UK domiciled individual in this manner will be treated as if they were, at the point of acquisition, transferred by them to a UK trust. This will mean that, on acquiring an interest in settled assets, the reduction in value of the UK domiciled individual's estate is immediately chargeable to IHT and the settled property is subject to periodic and exit charges.
Who will be affected?
Individuals (or their executors) and trustees who enter into schemes which involve a UK domiciled individual acquiring a life interest in an excluded property trust.
When?
Periodic and exit charges will apply to all new and pre-existing arrangements. In addition, an IHT charge, based on the reduction in value of a taxpayer's estate, will apply to all acquisitions which take place on or after 21 March 2012.
Our view
This builds on measures previously announced and it is not unexpected that further legislation is being introduced to stop schemes of this nature.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
