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)Ìý

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

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:Ìý

  • IHTA84/S6 (1), - an unsettled reversion will be excluded property if the transferorÌýisÌýnot a long-term UK resident (IHTM47000)Ìý(transfers on or after 6 April 2025)Ìýor was domiciled (IHTM13000) abroadÌý(transfers before 6 April 2025), IHTA84/S6 (1),ÌýIHTA84/S48 (3), - a reversion which is itself comprisedÌýin a settlement will be excludedÌýproperty:ÌýÌý

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

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

  • iIfÌýthe settlor바카라 사이트¯of the reversionÌýdied before 6 April 2025 andÌýwas domiciled abroad when the reversion became comprisedÌýin the settlement, IHTA84/S48 (3).Ìý

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

Unsettled reversion, Example 1Ìý

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

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 residenceÌýare outside the UKÌýat the date of death.Ìý

Settled reversion, Example 2Ìý

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

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