IHTM27230 - Foreign property: property excluded from Inheritance Tax: reversionary interests

IHTA84/S47 - a reversionary (IHTM04281) interest means any future interest under a settlement. Such an interest is usually excluded from Inheritance Tax subject to certain exceptions (IHTM04286) 

A reversionary interest is an item of property, separate from the property in which the interest subsists. 

Unless the interest is excluded by the main provision in IHTA84/S48 (1), a reversionary interest that is itself situated outside the UK should be treated as follows: 

  • IHTA84/S6 (1), - an unsettled reversion will be excluded property if the transferor is not a long-term UK resident (IHTM47000) (transfers on or after 6 April 2025) or was domiciled (IHTM13000) abroad (transfers before 6 April 2025), IHTA84/S6 (1), IHTA84/S48 (3), - a reversion which is itself comprised in a settlement will be excluded property:  

  • At times when the settlor of the reversion is not a long-term UK resident; 

  • If the settlor of the reversion dies on or after 6 April 2025, if they were not a long-term UK resident immediately before their death; or 

  • iIf the settlor바카라 사이트¯of the reversion died before 6 April 2025 and was domiciled abroad when the reversion became comprised in the settlement, IHTA84/S48 (3). 

  • The situs or locality of a reversionary interest will normally be determined by the residence of the trustee(s) of the property in which the interest relates. 

Unsettled reversion, Example 1 

Anna transfers £100,000 to trustees in Spain on trust for Barry for life with remainder to her husband Derek. Some years later, while Barry is alive, Derek dies domiciled in Spain/not a long term UK resident and bequeaths all his estate (including his reversionary interest under Anna바카라 사이트™s settlement) to his son Callum. 

On Derek바카라 사이트™s death the reversion is not excluded from his estate by IHTA84/S48 (1) because he is the settlor바카라 사이트™s spouse. But the exclusion provided by IHTA84/S6 (1) applies as both the locality and Derek바카라 사이트™s domicile/long term UK residence are outside the UK at the date of death. 

Settled reversion, Example 2 

The facts are as Example 1 and Callum sells the inherited reversion to Edward. Edward, who is also domiciled in Spain/not a long-term UK resident, immediately puts the purchased reversion on discretionary trusts. 

The reversion that is now in Edwards바카라 사이트™s settlement is excluded property in view of Edward바카라 사이트™s foreign domicile/long-term residence and the overseas residence of the trustees of Anna바카라 사이트™s settlement, as long as it remains a reversionary interest. This is the case even though it was purchased by the settlor and is therefore outside the protection of IHTA84/S48 (1).