Spring Budget 2024: The end of excluded property trusts and the subsequent Inheritance Tax advantages?

The short answer is, possibly. Heralding a “modern, simpler, residency-based system” in a bid to bring wealth from overseas to the UK, the Chancellor’s announcement will affect many non-domiciled people who live in the UK.

One of the major advantages of the non-domiciled regime is the ability to create a trust which, with some limited exceptions, is permanently outside the scope of UK Inheritance tax. These trusts, known as ‘excluded property trusts’, offer significant tax savings to families whose wealth was outside the UK.

Information on the extent of the changes is not yet known in detail, but it appears as if they will not be possible until after 6 April 2025, so that trusts funded before this date will continue to enjoy the existing regime provided there are no additions to the trust after 6 April 2025.

It is important to realise that the new regime appears to be predicated:

• on the residence of the settlor at the time the trust was created,
• or on the occasion of a potential inheritance tax charge such as ten-year anniversaries or exits from the trust.

If the Settlor was not a UK resident and has not been a resident for 10 years at the time of such IHT events, the trust would appear to continue to be outside the UK inheritance tax regime. Trusts with deceased settlors, for example, would not be expected to cause an issue, but where a settlor is in the UK ‘temporarily’ but for more than four years, care will need to be taken to make sure nothing is missed.

How will this affect you?

The main question for our clients is whether it is wise for any currently non domiciled but UK resident person to create a trust in the coming months. This will be a very personal decision depending on their family circumstances and the amounts and costs involved, but it is definitely something to consider. It appears that there will be several other income and capital gains tax changes which may have a bearing on things as well. These are discussed in separate articles in this section. The key thing is to seek specialist advice and to do so, soon.

Contact us

The technical notes issued by HMRC are not detailed and refer to a number of future consultations which may alter things, but for now, please don’t hesitate to contact Lisa Spearman or a member of the Private Client Team who will be happy to talk through your situation to find the right solution for you.