Sophie St John
- Partner
- Private Client
Capping inheritance trust charges for excluded property trusts revisited
The Government has now published draft legislation confirming a concession under the UK’s 2025 “non-dom” tax reforms for trusts that were formerly “excluded property trusts”. While a new IHT cap offers relief for only the largest structures, affected trustees should consider what planning is needed to ensure the trust can benefit from the cap. Affected trusts will also need to navigate a new anti‑avoidance rule that took effect on the day of the 2025 Autumn Budget.
In our November 2025 edition of Globally Speaking, we explained that the UK Budget on 26 November 2025 included an unexpected announcement affecting the inheritance tax (IHT) position of formerly “excluded property trusts” that had a “long-term resident” (LTR) settlor and were brought into the UK IHT net from 6 April 2025 following the “non-dom” tax reforms.
The draft legislation has now been published.
The changes
With retrospective effect from 6 April 2025, the draft legislation sets out the promised cap on relevant property IHT charges for trusts that held “excluded property” (broadly, non-UK situs assets that were settled by a “non-dom” settlor) on 30 October 2024 and continue to hold non-UK assets at the time of the relevant IHT charge. The relevant property charges are capped at £5 million over each ten-year cycle; for shorter periods (such as between 6 April 2025 and the next ten-year anniversary), the cap will operate on a pro-rata basis, set at £125,000 per quarter.
While the concession is welcome, in practice it is only beneficial where a trust is worth more than £83 million. It may therefore be of limited use as one expects the bulk of settlors with such valuable trusts left the UK before 6 April 2025 when the new “non-dom” rules took effect. For those settlors who did not take this action, however, there are some planning points for trustees to consider to ensure affected trusts can benefit from the cap.
Planning points
Trustees should model when the next IHT charge will arise and whether the trust is likely to approach the cap, and maintain records showing asset situs and values at the key dates (30 October 2024 and the IHT charge date).
Given that the cap will only apply where the assets remain non‑UK at the time of the IHT charge, trustees should be mindful of this when considering moving assets into the UK, and carefully assess whether the investment (or other) benefits outweigh the IHT impact of losing the cap.
Because exit charges form part of the capped cycle, trustees of affected trusts should consider the timing of distributions to make best use of the IHT cap.
Anti-avoidance rule
The draft legislation also introduces an anti-avoidance rule that provides that if a settlor ceases to be a LTR and there is no IHT charge at that time, there will be an IHT charge if there is a later change in situs of the trust’s assets from UK to non-UK; this rule came into force on 26 November 2025 (Budget Day). This prevents trustees seeking to avoid an IHT charge by changing the situs of the trust assets to the UK before the settlor’s LTR status changes, and at a later date changing the situs of the assets to overseas again where they are outside the scope of IHT. If there is genuine commercial reasoning for changes in asset composition, trustees should keep documentation evidencing this.
How we can help
Our Private Client team advises internationally mobile individuals, family offices, and trustees on structuring wealth across borders, mitigating exposure to UK taxes and ensuring compliance with complex regimes such as the new tax rules for UK arrivers. We work seamlessly with your other advisers to deliver integrated solutions – from reviewing existing structures to planning for future changes.
If you would like to discuss how these measures may affect you or your family, please contact Sophie St John or another member of our International Private Client team.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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