Excluded Property Settlement IHT UK 2026: s48 IHTA Non-Dom Trusts, Foreign Situs Assets, FA 2025 Long-Term Resident Test, and Non-Dom IHT Planning
An excluded property settlement (s48 IHTA 1984) holds foreign situs assets settled by a non-domiciliary, outside IHT scope entirely: no entry charge, no periodic charges, no exit charges, no charge on death. FA 2025 replaced deemed domicile with a 10/20 long-term resident test from 06 April 2025. Settlements made before FA 2025 are transitionally protected.
Excluded Property Settlement: s48 IHTA, Foreign Situs Assets, Settled by Non-Domiciliary, Completely Outside IHT Scope, FA 2025 Transitional Protection
S48(3) IHTA 1984: EXCLUDED PROPERTY SETTLEMENT, property outside the UK (foreign situs) settled by a person NOT UK-domiciled at date of settlement = excluded property = ZERO IHT (entry, periodic, exit, death charges). Situs test: once-and-for-all at settlement date. FA 2025 (from 06 April 2025): LONG-TERM RESIDENT (LTR) test replaces deemed domicile, more than 10 of previous 20 UK tax years = LTR = worldwide IHT scope. WINDOW: 10 years from UK arrival to create excluded property settlement. TRANSITIONAL PROTECTION: assets in existing excluded property settlements at 06 April 2025, protected indefinitely. New assets added by an LTR: NOT protected. UK-situs assets in the trust: NOT excluded property, chargeable as relevant property. Non-dom spouse exemption: specialist advice required post-FA 2025.
| Aspect | Rule / Principle | Example / Scenario | Planning Guidance |
|---|---|---|---|
| Excluded property settlements: s48 IHTA 1984, the basic concept and IHT exemption | THE EXCLUDED PROPERTY SETTLEMENT, S48 IHTA 1984: WHAT IS EXCLUDED PROPERTY IN A SETTLEMENT? Under s48(3) IHTA 1984: property comprised in a settlement is EXCLUDED PROPERTY if: (a) the property is situated OUTSIDE THE UK; AND (b) the settlor was NOT DOMICILED IN THE UK at the time the settlement was made. TWO TESTS, BOTH MUST BE SATISFIED: (1) PROPERTY SITUS, must be non-UK situs at the relevant time. What is 'foreign situs'? Under English private international law (and HMRC's IHTM04030): shares in a foreign company are sited where the company is incorporated. A bank account is sited where the account is held. Land is sited where the land is located. Foreign government securities are sited in the country that issued them. Bearer shares are sited where the physical share certificate is held. Note: shares in a UK company are UK-sited even if held in an offshore trust, UK shares in an excluded property settlement are NOT excluded property; they are UK-sited and chargeable. (2) SETTLOR'S DOMICILE AT DATE OF SETTLEMENT, the settlor must NOT have been UK-domiciled at the TIME THE SETTLEMENT WAS MADE. This is a once-and-for-all test: if the settlor was not UK-domiciled when they created the trust, the property (foreign situs) is excluded property for the life of the trust, even if the settlor later acquires UK domicile or becomes a long-term UK resident. WHAT 'NOT DOMICILED' MEANS (PRE-FA 2025): under the pre-FA 2025 rules, a person was 'UK domiciled' for IHT if: (a) they had an English law domicile of domicile of choice or origin in the UK; OR (b) they were DEEMED DOMICILED under s267 IHTA: (i) resident in the UK for 15 of the last 20 tax years (old 15/20 rule); OR (ii) domiciled in the UK within the last 3 years. If the settlor was not UK domiciled AND not deemed domiciled at the time of settlement: the excluded property settlement was valid. POST-FA 2025 (FROM 06 APRIL 2025): 'deemed domicile' was abolished. A person is now within the scope of UK IHT on worldwide assets only if they meet the NEW LONG-TERM RESIDENT (LTR) test: UK resident for MORE THAN 10 of the PREVIOUS 20 TAX YEARS. If the settlor was not UK resident (or was resident for ≤ 10 of the last 20 years) at the time of settlement: the excluded property settlement is valid. TRANSITIONAL PROTECTION FOR EXISTING SETTLEMENTS: FA 2025 provides that excluded property settlements created BEFORE 06 APRIL 2025 under the old deemed domicile rules are PROTECTED, the existing assets remain excluded property even if the settlor is now a long-term resident. | EXCLUDED PROPERTY SETTLEMENT, WORKED EXAMPLE: Stefan is a German national who moved to the UK on 01 April 2015 (tax year 2015-16 start). In October 2018 (tax year 2018-19): Stefan creates a trust settled with German bank accounts and German shares (total value: £2m). At the date of settlement (October 2018): Stefan has been UK resident for 3.5 years (2015-16, 2016-17, 2017-18, and part of 2018-19). Under the old pre-FA 2025 rules: deemed domicile arose after 15 of the last 20 tax years. Stefan has been UK resident for 3.5 years, well below 15 years. Stefan is NOT deemed UK domiciled (and not English law domiciled, he retains his German domicile of origin). The trust settled in October 2018: the property (German bank accounts, German shares) is FOREIGN SITUS. Stefan was NOT UK domiciled at settlement. → The trust is an EXCLUDED PROPERTY SETTLEMENT. The German assets ARE EXCLUDED PROPERTY under s48(3) IHTA. IHT TREATMENT: entry into trust: NO IHT (excluded property, not a chargeable transfer). 10-year periodic charges: NO charge (excluded property, outside relevant property rules). Exit charges: NO charge (excluded property). Stefan's death: NO charge on the trust assets in Stefan's estate (excluded property). 2026 POSITION: Stefan has now been UK resident for 11 years (2015-16 to 2025-26). Under FA 2025 (from 06 April 2025): Stefan's new LONG-TERM RESIDENT TEST: has he been UK resident for more than 10 of the previous 20 tax years? By 2026-27: yes, 11 years. Stefan is now a LONG-TERM RESIDENT. FA 2025 TRANSITIONAL PROTECTION: the existing German assets in the trust (settled before 06 April 2025) remain EXCLUDED PROPERTY, the protection applies to assets in the trust at 06 April 2025. Stefan's death estate: the excluded property settlement assets STILL NOT in his IHT estate. Stefan's UK assets (house, UK savings): FULLY CHARGEABLE (Stefan is now an LTR, worldwide assets within scope of UK IHT). IMPORTANT: any NEW assets added to the trust after Stefan becomes an LTR (06 April 2025 onwards for Stefan) are NOT excluded property, only the pre-06 April 2025 assets retain protection. | EXCLUDED PROPERTY SETTLEMENT PLANNING, KEY PRINCIPLES: (1) MAKE THE SETTLEMENT BEFORE BECOMING UK DOMICILED OR AN LTR: the critical window is when the settlor is NOT UK domiciled AND NOT a long-term UK resident (under FA 2025: not yet met the 10/20 test). A new arrival to the UK must CREATE THE SETTLEMENT within the first 10 years of UK residence (before triggering the LTR test). 10-year arrivals planning: year 1-10 UK resident = the optimal window to create an excluded property settlement. After 10 years of UK residence (meeting the LTR test): the excluded property settlement can no longer be created with LTR protection. (2) DO NOT ADD NEW ASSETS TO AN EXISTING EXCLUDED PROPERTY SETTLEMENT AFTER BECOMING AN LTR: under FA 2025, the transitional protection covers assets in the trust at 06 April 2025. NEW assets added to the trust after the settlor is an LTR are NOT excluded property (even if the trust itself was validly created before the settlor became an LTR). Additional contributions to an existing excluded property settlement after becoming an LTR: those additions are within the IHT scope. (3) UK-SITUS ASSETS IN THE TRUST: even within an excluded property settlement, UK-situs assets (e.g., UK company shares, UK real property, UK bank accounts) are NOT excluded property, they are regular relevant property subject to entry, periodic, and exit charges. An excluded property settlement containing UK assets must calculate periodic charges on the UK-situs portion. (4) FOREIGN SITUS TEST, ONGOING MONITORING: the excluded property status depends on the SITUS OF THE ASSETS (foreign situs) AND the SETTLOR'S DOMICILE AT SETTLEMENT. If the trustee reinvests trust assets from foreign securities into UK securities: the UK securities are NOT excluded property (UK situs). The trust will need to calculate IHT on the UK-situs assets from the date of acquisition. Monitor asset situs carefully throughout the trust's life. (5) NON-DOM SPOUSE EXEMPTION (S18 IHTA), FA 2025 CHANGES: under pre-FA 2025 rules, the spouse exemption was limited where a UK-domiciled spouse left assets to a non-UK-domiciled spouse (limited to £325k non-dom spouse exemption + NRB). From 06 April 2025: the new IHT rules for non-doms require specialist advice, the interaction between the new LTR test and the spouse exemption has changed significantly. |
| FA 2025 non-dom IHT reforms: the long-term resident test replacing deemed domicile | FINANCE ACT 2025, NON-DOM IHT REFORMS FROM 06 APRIL 2025: THE OLD SYSTEM (PRE-06 APRIL 2025): the UK taxed non-doms on UK-situs assets only, UNLESS: (a) they were DEEMED DOMICILED under s267 IHTA: (i) 15 of the last 20 tax years of UK residence (15/20 rule); or (ii) formerly UK domiciled and UK resident within the last 3 years. Once deemed domiciled: the person was taxed on worldwide assets. Excluded property settlements created before deemed domicile arose: the assets in the trust remained excluded property (the settlement was valid when the settlor was not deemed domiciled). THE NEW SYSTEM (FROM 06 APRIL 2025), LONG-TERM RESIDENT (LTR) TEST: the key question is now: has the person been UK RESIDENT for more than 10 of the previous 20 TAX YEARS? (This is the LONG-TERM RESIDENT test, replacing deemed domicile for IHT.) IF YES (LTR): the person is taxed on their WORLDWIDE ASSETS for IHT, the same as a UK domiciliary. IF NO: the person is taxed on UK-SITUS ASSETS only (not worldwide assets). THE 20-YEAR LOOK-BACK WINDOW: each tax year, the test is applied looking back at the 20 tax years ending in that tax year (including the current year). A person can 'fall out' of LTR status by leaving the UK and not being resident for enough years, the look-back window rolls. THE 10-YEAR TAIL: if a person leaves the UK after being an LTR: they remain subject to UK IHT on worldwide assets for a NUMBER OF YEARS after leaving (the 'tail'). The tail period = the number of years of UK residence above 10 years, up to a maximum of 10 years. Example: 15 years of UK residence → 5-year tail after leaving. 20 years → 10-year tail after leaving. 10 years exactly: no tail (the 10/20 test requires MORE THAN 10 years). TRANSITIONAL PROVISIONS (FA 2025): (a) EXISTING EXCLUDED PROPERTY SETTLEMENTS: trusts created before 06 April 2025 by a person who was not UK-domiciled at settlement, the assets in the trust at 06 April 2025 retain their excluded property status. (b) PEOPLE WHO WERE DEEMED DOMICILED UNDER THE OLD RULES: a person who was deemed domiciled on 05 April 2025 (under the old 15/20 rule) and has been UK resident for more than 10 of the last 20 years: immediately becomes an LTR under the new rules. No relief period. (c) PEOPLE WHO WERE DEEMED DOMICILED BUT WOULD NOT HAVE BEEN LTRS: a person who was deemed domiciled under the old rules (e.g., because they were formerly UK domiciled and returned within 3 years) but has been UK resident for ≤ 10 of the last 20 years: may have fallen OUT of deemed domicile and now be outside the worldwide scope under the new rules. Specialist advice is essential for all non-doms reviewing their position under FA 2025. | FA 2025 TRANSITIONAL, THREE SCENARIOS: SCENARIO 1, LONG-TERM RESIDENT BEFORE AND AFTER FA 2025: Yuki (Japanese national) moved to the UK in 2005. By April 2025: 20 years UK resident. Under old rules: deemed domiciled (15+ of last 20 years) since 2020-21. Under new LTR test: more than 10 of last 20 years → LTR. No change in IHT exposure for Yuki. Yuki has been paying IHT on worldwide assets since 2020-21 and continues to do so. Yuki's excluded property settlement (created in 2006, 1 year after arrival): protected under transitional provisions (created before deemed domicile arose; assets in trust at 06 April 2025 remain excluded property). SCENARIO 2, NEWLY NON-DOM ARRIVING IN 2020: Riya (Indian national) arrived in the UK in April 2020. By April 2026: 6 years UK resident. Under new LTR test: 6 of 20 years → NOT an LTR. Riya's IHT: UK-situs assets only (not worldwide). Riya's offshore trust (Indian shares, Indian real estate): NOT excluded property yet, Riya has not been UK resident for more than 10 years AND was not UK domiciled at settlement. The trust is an excluded property settlement. IHT: £0 on the Indian assets in the trust. Riya's window to create the excluded property settlement: from arrival (2020) through 2029-30 (year 10 of UK residence). After 10+ years: Riya becomes LTR, new settlements cannot be excluded property settlements. SCENARIO 3, FORMERLY DEEMED DOMICILED BUT NOW OUTSIDE LTR: Andrei (Romanian national) lived in the UK from 1990 to 2010 (20 years), then left to live in France in 2010. He retained UK citizenship and occasionally visited the UK. By 2025: Andrei has been UK resident for 0 of the last 20 years (2005-2025). Under old rules (if UK domicile of origin applies): complex analysis. Under new LTR test: 0 of last 20 years UK resident → NOT an LTR. Andrei is NOT subject to UK IHT on worldwide assets under the new rules. His offshore trust (French property, French shares) may be excluded property, subject to situs analysis at the time of settlement. | NON-DOM IHT PLANNING, FA 2025 PRIORITY ACTIONS: (1) REVIEW ALL EXISTING EXCLUDED PROPERTY SETTLEMENTS: confirm which assets in each trust were 'in the trust' at 06 April 2025 (and therefore protected by the transitional provisions). Document the trust asset schedule as at 06 April 2025. Any assets added to the trust after 06 April 2025 by an LTR settlor are NOT protected, they are chargeable. (2) THE 10-YEAR ARRIVAL WINDOW: a new UK arrival who is not UK domiciled should create the excluded property settlement as early as possible after arrival, ideally in the FIRST TAX YEAR. The FA 2025 window is 10 tax years from arrival (before hitting the LTR test). A person who arrived in 2016-17: they hit the LTR test in 2026-27 (11th year). IMMEDIATE ACTION if already approaching or past 10 years. (3) UK ASSETS IN AN OFFSHORE TRUST: if an excluded property settlement holds UK-situs assets (UK shares, UK property, UK bank deposits): these are NOT excluded property even within an excluded property settlement. The UK assets in the trust are relevant property, subject to entry, 10-year periodic charges (6% above NRB), and exit charges. Consider repatriating UK assets from the trust (exit charge will apply) and replacing with foreign situs assets to maintain the excluded property status of the trust. (4) SETTLOR'S DEATH AND THE EXCLUDED PROPERTY SETTLEMENT: on the death of the settlor who is an LTR: their UK assets are in their estate for IHT. But the assets in the excluded property settlement (foreign situs, settled before LTR status) are NOT in the estate. The excluded property settlement effectively REMOVES foreign assets from the settlor's death estate permanently. The children/beneficiaries receive the trust assets outside the settlor's estate, no IHT. (5) EXCLUDED PROPERTY SETTLEMENTS AND THE TAIL: the 10-year tail applies to the SETTLOR'S personal estate (non-trust assets). The tail does NOT affect the excluded property settlement, the trust's assets retain their excluded property status based on the SETTLEMENT DATE analysis, not on the settlor's residence at the time of their death. The settlor can leave the UK (triggering the tail for personal assets) while the excluded property settlement assets remain outside IHT. |
| UK government securities as excluded property and the non-dom spouse IHT exemption | UK GOVERNMENT SECURITIES AS EXCLUDED PROPERTY, S6(2) IHTA 1984: under s6(2) IHTA, certain UK government securities are EXCLUDED PROPERTY if the beneficial owner is not ordinarily resident in the UK. This is a long-standing rule that allows non-residents (even those with UK domicile or LTR status) to hold certain UK gilts outside the scope of UK IHT. THE SECURITIES QUALIFYING: HMRC publish a list of qualifying UK government securities in IHTM04012. Broadly: certain UK government stocks (Treasury stocks, War Loan, etc.) issued with the condition that they are exempt from IHT when held by persons not ordinarily resident in the UK. Note: this rule applies to the BENEFICIAL OWNER being not ordinarily resident, different from the 'not UK domiciled' test. Ordinarily resident is not the same as domicile. For FA 2025 purposes: HMRC is reviewing the interaction of the new LTR test with the s6(2) rule. Post-FA 2025: 'ordinarily resident' as a concept was abolished for income tax purposes in 2013 but remains relevant for these specific securities. Specialist advice required. NON-DOM SPOUSE EXEMPTION (S18 AND S48A IHTA): a separate IHT rule applies where a UK-domiciled person leaves assets to a non-UK-domiciled surviving spouse. Under the PRE-FA 2025 RULES: the spouse exemption (s18 IHTA) was CAPPED for transfers to a non-UK-domiciled spouse: only £325k of additional spouse exemption (the 'non-dom spouse exemption cap' under s18(2) IHTA as amended) was available above the NRB. The balance of the estate (above the non-dom spouse exemption cap) was chargeable to IHT at 40%. Under s267ZA IHTA: the non-UK-domiciled spouse could elect to be treated as UK-domiciled for IHT purposes, allowing the full unlimited spouse exemption (s18(1) IHTA) to apply. But the election had consequences: the elected spouse was then subject to UK IHT on worldwide assets from the date of election. POST-FA 2025 RULES (FROM 06 APRIL 2025): the FA 2025 reforms significantly changed the non-dom spouse exemption. The new position: the cap on the spouse exemption (for transfers to a non-UK-domiciled spouse who is not an LTR) has been increased. The election mechanism (s267ZA) continues to exist but its consequences change under the LTR test regime. HMRC Technical Note (2024): confirmed the transitional provisions for existing non-dom elections and the new cap levels. SEEK SPECIALIST ADVICE: the post-FA 2025 non-dom spouse exemption position is complex and subject to ongoing HMRC guidance. This area requires specialist advice from a private client solicitor or tax adviser with non-dom IHT expertise. | NON-DOM SPOUSE EXEMPTION, ILLUSTRATIVE EXAMPLE (PRE-FA 2025 RULES FOR CONTEXT): David (UK-domiciled; age 80) dies on 01 January 2025. His wife Elena (Russian national; not UK-domiciled; UK resident for 5 years) survives. David's estate: £2m. Elena is the sole beneficiary. PRE-FA 2025 RULES: the non-dom spouse exemption cap = David's NRB (£325k) + additional non-dom spouse cap (£325k) = total £650k spouse-exempt. Above £650k: IHT charged at 40%. IHT = 40% × (£2m − £650k) = 40% × £1.35m = £540k. ELENA'S OPTIONS: (a) accept the IHT of £540k from the estate. (b) elect under s267ZA to be treated as UK-domiciled: IF Elena elects: the full unlimited spouse exemption (s18(1) IHTA) applies retroactively → IHT on David's death = £0. BUT: Elena is now treated as UK-domiciled for IHT → her worldwide assets (including Russian assets) are within UK IHT scope. Elena's own estate (say £3m worldwide): all UK IHT chargeable on her death. TRADEOFF: saving £540k IHT on David's death vs exposure of Elena's £3m worldwide estate to UK IHT (cost: up to £1.2m IHT on Elena's death above available thresholds). POST-FA 2025 POSITION: Elena arrived in 2020; UK resident for 5 years at April 2025. Under LTR test: not yet an LTR. The non-dom spouse exemption position for transfers to Elena under FA 2025 must be verified with a specialist: the cap may have changed and the interaction with the new LTR rules requires careful analysis. | NON-DOM IHT PLANNING, STRUCTURING ADVICE (POST-FA 2025 KEY PRIORITIES): (1) EARLY EXCLUDED PROPERTY SETTLEMENT: non-doms arriving in the UK should create an excluded property settlement as EARLY AS POSSIBLE, before triggering the LTR test. The settlement should hold all foreign situs assets the settlor wants to protect from UK IHT on their death. Once created, the settlement is protected for the foreign situs assets for the settlor's life (and beyond, IHT does not apply to the trust on the settlor's death). (2) UK PROPERTY AND THE ENVELOPING TEMPTATION: a non-dom might consider holding UK real property through a foreign company (to make the asset 'foreign situs', shares in a foreign company are foreign situs, even if the underlying asset is UK land). However: HMRC's ANNUAL TAX ON ENVELOPED DWELLINGS (ATED) applies to UK residential property held through companies above a value threshold (£500k). Additionally: the government announced consultation on closing IHT avoidance through enveloping UK land in foreign companies. This technique is under legislative pressure. Seek specialist advice before enveloping UK property. (3) DIVERSIFY OUT OF UK ASSETS WITHIN THE TRUST: an excluded property settlement will lose its excluded property status on UK-situs assets. If the trust holds UK assets (e.g., it has acquired UK equities or UK bonds): the UK assets are chargeable. Liquidate UK assets within the trust and reinvest in foreign assets to maintain excluded property status on the reinvested portion. (4) FA 2025 GRANDFATHERING, DOCUMENT NOW: for excluded property settlements created before 06 April 2025: document NOW the asset schedule in the trust as at 06 April 2025. This schedule is the evidence of which assets benefit from transitional protection. HMRC may challenge the transitional claim if the asset schedule is not clearly documented. (5) CONSIDER THE INTERACTION WITH INCOME TAX AND CGT: excluded property trusts are not CGT-exempt, trust gains may be subject to CGT (potentially via the remittance basis or TCGA settlements provisions). Post-FA 2025: the remittance basis was abolished from 06 April 2025 for new arrivals (replaced by a 4-year exemption). The CGT interaction with excluded property trusts is complex and requires advice alongside the IHT analysis. |
Excluded property settlement IHT UK 2026. IHTA 1984 references: s6(1) (excluded property, foreign situs assets beneficially owned by non-domiciliary); s6(2) (UK government securities as excluded property for non-ordinarily resident holders, IHTM04012); s48(3) (excluded property settlements, foreign situs property settled by non-UK-domiciled settlor); s48(3A) and s48(3B): FA 2025 amendments to s48 to incorporate the LTR test for new settlements from 06 April 2025; s267 IHTA (old deemed domicile rule, now repealed by FA 2025 from 06 April 2025); s267ZA IHTA (non-UK-domiciled spouse election to be treated as UK-domiciled, still exists under FA 2025 with modifications); s18 IHTA (spouse exemption, unlimited for UK-domiciled spouse to UK-domiciled surviving spouse; capped for transfers to non-LTR surviving spouse, FA 2025 changes the cap). Finance Act 2025: Schedules 1 and 2 contain the non-dom IHT reforms. The key new definitions: LONG-TERM RESIDENT (LTR), UK resident for more than 10 of the 20 tax years ending in the relevant tax year. TAIL: the number of years after ceasing UK residence during which worldwide assets remain within IHT scope = MIN(years of UK residence above 10, 10). TRANSITIONAL PROTECTION (FA 2025, Schedule 2): existing excluded property settlements (created under the old rules), assets in the trust at 06 April 2025 remain excluded property. The transitional protection covers only those assets; new assets added to the trust by an LTR settlor after 06 April 2025 are not covered. HMRC IHTM04201 onwards: guidance on excluded property. Private international law (situs rules): IHTM04030, shares in a foreign company sited where incorporated; bank accounts sited where the bank branch is located; land sited where located; registered shares sited where the share register is kept. Annual Tax on Enveloped Dwellings (ATED): Finance Act 2013, applies to UK residential property held through companies above £500k value threshold. CGT settlements code: TCGA 1992 ss77-98, gains within excluded property settlements may still be subject to UK CGT (via the settlor interested in trust rules or the offshore trust gains rules). Remittance basis abolished from 06 April 2025 for new arrivals, replaced by 4-year foreign income and gains (FIG) exemption for years 1-4 of UK residence.
Frequently Asked Questions
What is an excluded property settlement and who can use it to reduce IHT?
An excluded property settlement is a trust holding property situated outside the UK, settled by a person who was not UK-domiciled at the time of settlement (s48(3) IHTA 1984). The foreign situs assets in the trust are excluded property, completely outside the scope of UK IHT. There are no entry charges, no 10-year periodic charges, no exit charges, and no charge on the settlor's death. It can only be used by non-domiciliaries (and from 06 April 2025, by persons who are not yet long-term UK residents under the FA 2025 reforms). UK nationals who have always been UK domiciled cannot use excluded property settlements.
What did Finance Act 2025 change for non-dom IHT and excluded property settlements?
Finance Act 2025 abolished 'deemed domicile' for IHT from 06 April 2025 and replaced it with a long-term resident (LTR) test: a person is subject to UK IHT on worldwide assets if they have been UK resident for more than 10 of the previous 20 tax years. Excluded property settlements created before 06 April 2025 are protected, the assets in the trust at that date retain their excluded property status regardless of whether the settlor becomes an LTR. New assets added to an excluded property settlement after the settlor becomes an LTR are NOT protected. The 10-year window for new arrivals to create an excluded property settlement before triggering the LTR test is the critical planning opportunity.
Do UK-situs assets in an excluded property settlement still attract IHT?
Yes. Even within an excluded property settlement, UK-situs assets (shares in UK companies, UK real property, UK bank accounts) are NOT excluded property, they are UK-sited assets subject to normal relevant property trust rules. Those UK assets within the trust are subject to 10-year periodic charges (6% of the value above the NRB) and exit charges on distribution. Only the foreign situs assets in the trust benefit from excluded property status. Trustees should monitor the situs of assets continuously and avoid accumulating UK-situs assets within an excluded property settlement.
Can a non-dom arriving in the UK still create an excluded property settlement in 2026?
Yes, a person who arrived in the UK in 2016-17 or later and has not yet been UK resident for more than 10 of the last 20 tax years is not yet a long-term resident (LTR) under the FA 2025 rules. They can still create an excluded property settlement by settling foreign situs assets into a trust while not UK-domiciled and not yet an LTR. The window closes once they exceed 10 years of UK residence (the LTR test is met). For a 2016-17 arrival: the 11th year of UK residence is 2026-27, urgent action may be required in 2026. Specialist advice from a private client solicitor is essential.
What is the non-dom spouse exemption for IHT and how has it changed under FA 2025?
When a UK-domiciled person leaves assets to a non-UK-domiciled spouse, the spouse exemption (s18 IHTA) was historically capped (the non-dom spouse exemption cap). The non-UK-domiciled spouse could elect to be treated as UK-domiciled (s267ZA IHTA) to access the unlimited spouse exemption, but at the cost of exposing their worldwide assets to UK IHT. Finance Act 2025 changed the interaction of this election with the new LTR test regime. The specific cap level and election consequences post-FA 2025 require specialist advice, this is one of the most complex areas of the FA 2025 non-dom reforms and HMRC's guidance continues to develop.
Arriving in the UK? Protect Your Foreign Assets from UK IHT Before the 10-Year Window Closes
Finance Act 2025 gives non-domiciliaries a 10-year window after arriving in the UK to create an excluded property settlement for foreign assets. Once the long-term resident test is met (10+ years UK residence), new settlements cannot be excluded property settlements. WillSafe kits for UK estate planning; specialist non-dom IHT advice from a private client solicitor for excluded property trust structures.
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