Writing for Taxation magazine’s Readers’ Forum, BKL private client tax specialist Terry Jordan answers a query on a UK-domiciled individual who lived in Ireland, an offshore trust and a gift with reservation (GWR).
The tax query
‘An individual (known as Mr X) who was domiciled in the UK, but lived in Ireland, was the appointed beneficiary of an offshore trust. He was appointed the main beneficiary in the 1990s on the death of the appointor.
- The trust was settled by a UK domiciled settlor.
- Mr X had a qualifying life interest.
- The qualifying life interest was terminated but the life tenant continued to benefit. So, Mr X reserved a benefit under gift with reservation (GWR) rules.
- Mr X died resident in Ireland, leaving no assets in the UK at all. As a result, no executors have been appointed for a UK probate, hence no IHT400 forms will be submitted, ie no IHT [inheritance tax] reporting by executors for the GWR. His executors in Ireland do not deal with the UK IHT reporting. There does not seem an appropriate IHT100 form for trustees to use to report the GWR.
How should the GWR be notified to HMRC and by whom? If trustees are obliged to do so, what form can they use or do they simply write to HMRC?’ Query 20,456 – Guinness.
Terry Jordan’s reply: There are apparently two occasions of a charge to inheritance tax
‘Guinness’s query relates to inheritance tax charges on an offshore trust. Under the relevant legislation, the fact that the settlor was domiciled within the UK when he made the settlement means that the trust property could never be ‘excluded’ for inheritance tax purposes (IHTA 1984, s 48(3)(a)) and the residence of the trustees is irrelevant. A professional other than a barrister involved with the making of the settlement would have been obliged to make a return to HMRC under s 218.
Mr X had an ‘estate’ interest in possession that apparently arose before 22 March 2006. That had the effect of putting the underlying capital value into Mr X’s IHT estate. We are told that Mr X’s interest was terminated but he continued to benefit, and I infer that the termination occurred after that date, which was when FA 1986, s 102ZA came into force as, prior to 22 March 2006, the termination would not have potentially fallen within the reservation of benefit provisions as it was not a ‘gift’. There are apparently at least two occasions of charge to IHT. The first is on the termination of the interest in possession when the value entered the relevant property regime and the second on the death of Mr X and there may also have been one or more ten-year charges following the termination.
The trustees are obliged to deliver accounts under IHTA 1984, s 216 using IHT100b for the termination of the interest in possession and I agree that it is not clear which form should be used for the charge on death. As no grant of representation is to be obtained in the UK, s 216(2) will oblige the beneficiaries of Mr X’s estate to submit an account, although enforcement might prove difficult.
As an aside, it is odd that Mr X who apparently lived in Ireland for many years and died there was nevertheless domiciled within the UK.’
The full article was published in Taxation magazine (issue 4970) and is available to subscribers here on the Taxation website.
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