This article is relevant for Non Doms who have been resident in the UK for less than 15 out of the past 20 tax years, intend to stay in the UK after April 2025 and have a significant potential inheritance tax liability.

The ‘Non Dom’ regime, technically called declaring tax on the ‘remittance basis’, is ending effective April 2025. This will have various implications for current Non Doms depending on their particular circumstances including that, from April 2025, their non-UK assets will suddenly become liable to the 40% UK inheritance tax (IHT) rate. A potential solution to this vulnerability is to utilise an ‘excluded property trust’ to shield assets; this must be done prior to 6 April 2025.

What is an Excluded Property Trust?

It is a trust designed to own assets so that those assets are not subject to UK inheritance tax.

The settlor, i.e. the person establishing the trust, must be non-UK domiciled. There is no tax on the establishment of the trust. Assets that are held within an Excluded Property Trust are not subject to UK inheritance tax.
Typically, an excluded property trust will be set up by someone who is currently a ‘non dom’ but who expects to become a regular UK taxpayer relatively soon. This was usually someone coming up to either the year in which they would have to pay to remain a ‘non dom’ or coming up to the time at which they could no longer be a ‘non dom’.

After yesterday’s announcement, every ‘non dom’ is now coming up to the time at which they can longer remain a ‘non dom’. That date, precisely, is 6 April 2025. Therefore, this strategy now may be relevant for every current ‘non dom’ who intends to remain resident in the UK after 6 April 2025.

Is it as simple as it sounds?

Not really, no.

First of all, typically only non-UK assets can be put into an Excluded Property Trust. You cannot put your UK home into one, for example. However, certain types of UK property, including some UK investment funds, can be excluded property.
Secondly, there can be complexities involved if the settlor, having become a normal UK tax resident, wants to withdraw money from the trust. In this instance (and many other instances), combining the Excluded Property Trust at its outset with an Offshore Portfolio Bond can make a lot of sense. This, essentially, allows for a portion (up to 5% per year) of the assets to be withdrawn free of tax, even after the settlor becomes a regular UK tax resident.

As an aside, there are various other potential benefits of combing an Excluded Property Trust with an Offshore Portfolio Bond, not least if the settlor eventually decides to leave the UK (depending on the jurisdiction to which they move).

For whom is this strategy most likely to be suitable?

A person with the following characteristics should very likely at least be exploring this option in more detail:

  • Currently a ‘non dom’, i.e. declaring the remittance basis of taxation
  • Intend to remain a UK resident beyond 6 April 2025
  • A net worth greater than £2 million
  • A desire to reduce their inheritance tax liability
  • Investable assets worth more than £1 million