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Excluded Property Trusts

Typically Excluded Property Trusts are used for Inheritance Tax Planning by UK residents who are not domiciled in the UK to shelter their assets from UK IHT when they become UK domiciled. Often used with offshore investment bonds, they are a form of discretionary trust which allows the Settlor access to both the income and capital of the investment bond without falling foul of the “Gifts with Reservation” rules.

HMRC uses the term “Excluded Property” to describe assets which do not fall within the remit of being liable to UK inheritance tax.

Gifts into Excluded Property Trusts are neither Chargeable Lifetime Transfers nor Potentially Exempt Transfers. Since the offshore investment bond held within the trust is excluded property, there will be no 10 year periodic or exit charges.

If the Settlor becomes UK domiciled they should avoid making any additional contributions to the Excluded Property Trust.

After the Settlor dies the trustees can either keep the trust going, with discretionary payments made to the beneficiaries or they can revoke the trust and assign the offshore bond to the beneficiaries.