Trusts: Excluded Property Status

Trusts: Excluded Property Status

Property that has been added to a trust or transferred between trusts will lose its excluded property status (and become “relevant property”) if the settlor of the transferor trust is domiciled or deemed domiciled at the time of the transfer. As a result of losing its excluded property status, the relevant property will be subject to the following inheritance tax charges:   

  • The relevant property will be subject to ten yearly charges of 6% on the trust anniversary date;
  • The relevant property will be subject to exit charges of up to 6% if and when distributed out of the trust; and
  • There will also be an inheritance tax charge of 40% on the relevant property at the settlor’s death if the settlor is a beneficiary of the trust.

There are also inheritance tax implications if an individual lends money or property to an excluded property trust of which he is settlor at a time when he is domiciled or deemed domiciled. Any net increase in the value of assets loaned to the trust will be deemed to be an addition to the trust and will expose the increase in the value to the inheritance tax consequences listed above. 

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