Our client was a UK resident beneficiary of a overseas trust which had been established many years ago by their father who was non-UK resident and domiciled.
The trust owned UK residential properties (both directly and through an overseas company) and following the 2017 changes to excluded property, the trust was within the relevant property regime and potentially subject to UK Inheritance Tax (IHT) on each 10 year anniversary and when funds exit the trust.
The beneficiary intended to emigrate abroad in the near future and both the beneficiary and trustees were in agreement that in the long term it would be preferred that the UK properties were sold and either the funds reinvested overseas or the trust wound up and the proceeds distributed to the beneficiary.
The beneficiary’s key objective was to ensure that the trust would continue to support his family’s needs in light of their upcoming emigration from the UK in a tax efficient way.
We provided a detailed report setting out the tax implications of: disposing of the UK assets; reinvesting in overseas assets and/or winding up the trust; and made recommendations regarding the steps to take.
The advice highlighted the importance of timing. If assets were distributed from the trust before the beneficiary left the UK then the beneficiary would be subject to Capital Gains Tax (CGT) in respect of the trusts stockpiled gains matched against capital payments. Similarly, if assets were distributed whilst the beneficiary was UK deemed domiciled then the assets would form part of his estate and could be subject to UK IHT on his death.
The trustees and beneficiary used our advice and recommendations to create a roadmap that identified the interim steps that needed to be taken in order to achieve their long term goals, and set out time frames for the sale of the UK properties, initial reinvestment overseas and subsequent distributions to the beneficiary and winding up of the trust.