In Barclays Wealth Trustees (Jersey) Limited and Michael Dreelan v HMRC [2017] EWCA Civ 1512 the Court of Appeal (CA) considered whether assets transferred between trusts could be excluded property.

Where a trust falls into the UK Inheritance Tax (IHT) regime it is, except in certain circumstances, required to pay a charge on every tenth anniversary of the settlement. Where a trust is settled outside the UK by a non-UK domiciled individual and holds non-UK situs assets it is “excluded property” for IHT purposes and so falls outside the UK tax net, even if the individual later becomes domiciled or deemed domiciled in a UK jurisdiction.

On 21 June 2001, Michael Dreelan (the settlor) settled various assets in a Jersey-resident trust. On 23 April 2013, HMRC raised a determination for a ten-year charge on certain assets held within the settlement.

The settlor and the Trustees appealed against this determination on the basis that the assets were excluded property so did not fall within the UK IHT net. At all material times, the settlor was domiciled in the Republic of Ireland. However, he became deemed domiciled in Scotland from 6 April 2003.

On 4 February 2003, the settlor acquired some UK situs shares which were transferred into the trust, which then transferred them into an offshore company it owned. This latter company was dissolved on 31 March 2008, with its assets being transferred to the trust.

The settlor set up a new Jersey settlement (DBJT) with his brothers on 4 April 2008 and the trustees transferred the UK situs shares into DBJT. These were sold on 3 July 2008, with the cash transferred back to the trust offshore.

The Court of Appeal held:

  • As the settlor was not deemed UK domiciled when the UK situs shares were settled on trust and the proceeds were foreign property at the tenth anniversary, they would have been excluded property if they had stayed in the trust.
  • Assets settled on DBJT could not be excluded as the settlor was deemed domiciled in the UK when the settlement was made and the assets were UK situs.
  • However, the transfer between trusts was not a separate settlement and s.81 of IHTA treats assets transferred between settlements as remaining in the first; they remained excluded property.

Useful guides on this topic

Non-resident Trusts
When is a trust non-resident?  What are the UK tax implications of a non-resident trust?  What are the UK tax implications for any beneficiaries?  What are the UK administrative requirements for a non-resident trust?

UK Trusts
What is a trust? What types of trust are there? How are UK trusts taxed?

Non-domicile status and tax
Who is non-UK domiciled? What does this mean for UK Income Tax, Capital Gains Tax and Inheritance Tax? What reliefs are available to non-doms?

Trusts & Estates: Ten-year charge reporting requirements
What is the ten year charge (or principal or periodic charge) and when does it apply?

External link

Barclays Wealth Trustees (Jersey) Limited and Michael Dreelan v HMRC [2017] EWCA Civ 1512

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