What the trust does and why it mattered
Excluded property is a defined category in the Inheritance Tax Act 1984, and the most important type for internationally mobile families is non-UK situated property settled by a qualifying settlor. When property is excluded, it sits outside the relevant property regime that normally applies to discretionary and most lifetime trusts, escaping the 20% entry charge on transfers above the nil-rate band, the principal charge of up to 6% at each 10-year anniversary, and proportionate exit charges. Under the old rules, if the settlor was neither domiciled nor deemed domiciled in the UK when the assets went in, the foreign property generally stayed excluded permanently, even if the settlor later became deemed domiciled. That once excluded, always excluded feature made these trusts a cornerstone of planning, as our guide on trusts and inheritance tax explains.
The 2025 shift to residence
From 6 April 2025 the test is residence, not domicile. Foreign settled property is excluded property only at times when the settlor is not a long-term UK resident, broadly someone UK resident in at least 10 of the 20 tax years before the year of the chargeable event. The status is tested at each relevant time, such as a 10-year anniversary, an exit or death, not just when the trust was created. If the settlor is or becomes a long-term resident, the foreign assets are pulled into the relevant property regime; if they later cease to be, the assets can become excluded again, with a possible exit charge at that point. There is also a tail: long-term resident status persists for between 3 and 10 tax years after leaving the UK depending on the length of residence, as covered in our guide on residence-based inheritance tax.
Existing trusts and planning now
Existing trusts are not simply grandfathered. Property that was excluded property in the settlement immediately before 30 October 2024 keeps targeted transitional protection, including protection against the gift with reservation rules and a £5 million cap on relevant property charges per 10-year cycle, but additions made on or after that date follow the new residence tests with no protection at all, so topping up an old trust is a decision to take advice on first. The trusts still have a role for genuinely mobile individuals: settling foreign assets before the 10-of-20 threshold is met, including during the 4-year FIG regime window, can secure excluded status, and trustees should review funding history and the settlor's residence timeline before every anniversary. The wider position for these structures is covered in our offshore trusts guide. Horizon reviews trust and residence positions for a fixed fee agreed upfront, and a free clarity call is the simplest way to find out where you stand.