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Closing the door on excluded property

Andrew Cockman, Director of AMC Tax Consulting Ltd, looks at the implications of changes to inheritance tax (IHT) rules in the Finance Act 2020 (FA 2020).

TrustsThe first surprise for anyone not practising in this area is that the changes are retrospective. The second is that the draftsman has used terminology that lacks absolute certainty. The corollary is that the changes may have wider repercussions than intended. Finally, no account seems to have been taken of the wider F(No.2)A 2017 changes to the domicile rules. Was change on this scale necessary?

Prior to FA 2020, the general position was that trusts established by a settlor who was neither legally domiciled nor deemed domiciled within the UK were eligible to benefit from excluded property treatment, provided that only non-UK sited assets were held. There were special rules that dealt with transfers between settlements, and F(No. 2)A 2017 changed the situs rules in relation to enveloped UK residential property.