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)听

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

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:听

  • IHTA84/S6 (1), - an unsettled reversion will be excluded property if the transferor听is听not a long-term UK resident (IHTM47000)听(transfers on or after 6 April 2025)听or was domiciled (IHTM13000) abroad听(transfers before 6 April 2025), IHTA84/S6 (1),听IHTA84/S48 (3), - a reversion which is itself comprised听in a settlement will be excluded听property:听听

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

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

  • iIf听the settlor鈥痮f the reversion听died before 6 April 2025 and听was domiciled abroad when the reversion became comprised听in the settlement, IHTA84/S48 (3).听

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

Unsettled reversion, Example 1听

Anna transfers 拢100,000 to trustees in Spain on trust for Barry for life with remainder听to her husband Derek. Some years later, while Barry is alive, Derek dies domiciled in Spain/not a long term听UK resident听and bequeaths all his estate (including his reversionary interest under Anna鈥檚 settlement) to his son Callum.听

On Derek鈥檚 death the reversion is not excluded from his estate by IHTA84/S48 (1) because he is the settlor鈥檚 spouse. But the exclusion provided by IHTA84/S6 (1) applies as both the locality and Derek鈥檚 domicile/long term UK residence听are outside the UK听at the date of death.听

Settled reversion, Example 2听

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

The reversion that is now in Edwards鈥檚 settlement is excluded property in view of Edward鈥檚 foreign domicile/long-term residence听and the overseas residence of the trustees of Anna鈥檚 settlement, as long as听it remains听a reversionary interest. This is the case even though it was purchased听by the settlor and is therefore outside the protection of IHTA84/S48 (1).