IHTM13034 | Other domicile issues: Assets settled into trust

From 6 April 2025, for inheritance tax purposes, domicile is replaced by long-term UK residence and you can find details of these rules at IHTM47000.

Domicile will remain relevant to trust charges in some circumstances, in particular in relation to charges which arise before 6 April 2025 and where a settlor of a trust has died before 6 April 2025. Full details are at IHTM47001.

Where domicile is the relevant test, the general rule is that when an individual who is not domiciled in the UK settles non-UK assets into a non-UK resident trust, the assets in that trust will not be subject to Inheritance Tax (see IHTM04273).

Guidance on domicile can be found in the Residence Domicile and Remittance Basis Manual (HMRC website). Most settlors should be able to use this guidance to decide for themselves whether or not they are UK domiciled.

An individual setting up a non-resident trust who considers (having followed the guidance in the RDRM) that they are non-UK domiciled does not have to submit an Inheritance Tax account to HMRC. Normally ,where the assets are added to the trust before 6 April 2025, if the settlor is non-UK domiciled and the settled assets are non-UK sited no Inheritance Tax is due.

If we receive an Inheritance Tax account for a disposition that was made on or after 24 August 2010 we will only consider:

• opening an enquiry where domicile could be an issue, or

• making a determination of Inheritance Tax (IHT), under IHTA84/S221

in cases where there is a significant risk of loss of UK tax.

We will assess the significance of the risk using a wide range of factors. The factors will depend very much on the individual case but will include, for example:

• A review of the information available to us about the individual on HMRC databases.

• Whether there is a significant amount of tax (all taxes and duties not just IHT) at risk

We do not consider it appropriate to state an amount of tax that would be considered significant, as the amount of tax at stake is only one factor. Taxpayers and agents should be bear in mind that we will take into account the potential costs involved in pursuing an enquiry, and also those of potential litigation should the enquiry not result in agreement between us and the individual. Clearly such costs can be substantial.

Where we do open an Inheritance Tax enquiry in any of these cases, you should keep the factors in view and you should stop the enquiry at any stage if you consider that continuing it is not cost effective. The outcome of such an enquiry might be that we do not consider it appropriate to make a determination of the Inheritance Tax, under IHTA84/S221. You should consult your G7 manager or Technical before closing an enquiry on this basis.

Taxpayers and agents are also asked to bear in mind that enquiries into domicile involve a detailed inquiry into all of the relevant facts and we are likely to require considerable personal information and extensive documentary evidence about the taxpayer and the taxpayer’s close family.

Our current approach on this issue was first outlined in Revenue and Customs Brief 34/2010 (HMRC website).