In July, the Government published draft clauses for Finance Bill 2020, including measures announced in last year's Budget to clarify the position on additions to excluded property trusts (broadly trusts of non-UK assets set up by non-domiciled settlors which are outside the UK inheritance tax net). The new rules provide that:
- Property added to an excluded property trust after the settlor has become UK domiciled will not be excluded property. The rest of the property will remain excluded property, so the settlement as a whole will not be tainted. This is effectively just legislating what most prudent advisors have assumed the position to be anyway and will have effect in respect of all IHT charges arising after the Finance Act 2020 is enacted, regardless of when the addition was made.
- Property transferred after the enactment of Finance Act 2020 between excluded property settlements after the settlor of the first settlement has become UK domiciled or deemed domiciled will not be excluded property. This amendment reverses a recent case which concluded that the date the second settlement was set up was the relevant date to test the settlor's domicile . Again, the rest of the property in the trust will not be tainted for IHT purposes, although the whole settlement may still lose its protected settlement status for income tax/CGT.
Although these provisions were put forward by the last incarnation of the government, they are not policy driven and are likely to be carried forward given they are largely uncontroversial and technical in nature.