Establishing an excluded property trust can serve as a valuable strategy for high-net-worth UK expats who wish to keep a portion of their non-UK wealth outside the scope of their taxable estate and consequently reduce their inheritance tax (IHT) exposure.
However, the effectiveness of this planning depends on meeting specific conditions under the post–6 April 2025 long-term residence (LTR) rules, which determine whether trust assets qualify as excluded property at the time an IHT charge arises.
This article will provide a comprehensive overview of excluded property trusts, focusing on their qualifying rules, tax treatment, and the benefits they may provide to UK expats. It will also outline the key steps involved in establishing an excluded property trust and explain how the distinction between excluded property and relevant property affects ongoing IHT exposure.
What You Will Learn
- What is an excluded property trust and how does it work?
- What are the tax advantages and implications of using excluded property trusts under the post–6 April 2025 long-term residence (LTR) rules?
- Who are excluded property trusts suitable for and what conditions must be met for assets to qualify as excluded rather than relevant property??
- What is the process of establishing an excluded property trust and maintaining its effectiveness over time?
What Is an Excluded Property Trust?
An excluded property trust is a term used to describe an offshore trust structure applicable to foreign assets settled by non-resident UK expats.
Where the assets qualify as excluded property, they fall outside the scope of UK inheritance tax (IHT) at relevant chargeable events, such as the settlor’s death, 10-year anniversaries, or exit charges.
For a trust to be treated as holding excluded property, the assets must be non-UK situated and the settlor must not be a UK long-term resident (LTR) for tax purposes at the time the IHT charge arises. Excluded property status is therefore determined at each IHT event, not solely when the trust is first established.
The LTR status of beneficiaries, except for those who are also settlors, generally does not affect the IHT position of an excluded property trust.
However, beneficiaries may still face tax consequences on distributions depending on their own tax residence and local tax laws.
Excluded Property vs Relevant Property: Why the Distinction Matters
For inheritance tax purposes, UK trust assets fall into one of two categories: excluded property or relevant property.
Understanding the distinction is essential when evaluating how offshore trusts are treated under the post–6 April 2025 rules.
Excluded property refers to certain assets that fall outside the scope of UK inheritance tax, most commonly non-UK assets held by a settlor who is not a long-term UK resident (LTR) at the point an IHT charge arises.
When assets qualify as excluded property, they are generally not subject to UK IHT on the settlor’s death, nor on 10-year anniversaries or exit events.
Relevant property encompasses most other trust assets that do not meet the excluded property conditions. Relevant property falls within the UK IHT regime and may give rise to:
- A 20% entry charge on chargeable lifetime transfers above the available nil-rate band;
- 10-year periodic charges (typically up to around 6% of the excess value); and
- Exit charges when capital leaves the trust or when assets transition out of the relevant property regime.
Under the new LTR system introduced from 6 April 2025, non-UK trust assets may move between excluded and relevant property depending on the settlor’s LTR status at the time of a chargeable event.
This dynamic treatment makes it essential to assess trust exposure regularly, particularly for expats who may return to or leave the UK. Regular reviews are therefore necessary to ensure the trust continues to operate as intended and to anticipate upcoming changes in IHT exposure.
How Do Excluded Property Trusts Work?
Excluded property trusts are typically structured as discretionary trusts, which means that the trustees exercise discretion in deciding which beneficiaries receive distributions from the trust and when.
As the settlor, you may nominate any individual or class of people, such as children, grandchildren, cousins, or nieces, to benefit from the trust. However, your nominations will be treated as suggestions and will not grant the nominated beneficiaries an automatic or absolute right to the trust’s capital or income.
Whether the trust’s non-UK assets are treated as excluded property or relevant property depends on the rules in force at the time an inheritance tax (IHT) charge arises. Under the post-2025 regime, this turns on your long-term residence (LTR) status rather than your domicile.
The rules governing excluded property trusts are divided into two distinct periods:
- Before April 6, 2025
- After April 6, 2025
How Excluded Property Trusts Worked Before April 6, 2025
Prior to April 6, 2025, the excluded property status of assets held in foreign trusts depended on the settlor’s domicile status.
If you were an expat who was not domiciled in the UK at the time the property was placed in the trust, the non-UK assets would normally be treated as excluded property trust.
As a result, the trust’s foreign assets would be removed from inheritance tax calculations when evaluating your taxable estate. Even if you later became domiciled in the UK, the excluded property status of those non-UK assets would typically continue.
The connection between domicile and IHT exposure often posed challenges for UK expats who relocated frequently and did not reside in one jurisdiction long enough to acquire a domicile of choice.
In such instances, His Majesty’s Revenue and Customs (HMRC) often had to determine domicile status on a case-by-case basis, creating uncertainty as to whether foreign trusts would be treated as excluded property or fall within the scope of UK IHT.
How Excluded Property Trusts Work After April 6, 2025
Under the new rules, excluded property status is no longer permanently determined by your domicile at the time the trust was established.
Instead, the status of overseas trusts may change over time and is determined at each IHT chargeable event, depending on your UK LTR status at that point.
For expats considered UK LTRs at the time of an IHT event, all worldwide assets, including non-UK assets held in foreign trusts, will be treated as relevant property and therefore subject to IHT.
Conversely, non-UK assets in foreign trusts will qualify as excluded property for expats who are not LTRs at the time of the chargeable event.
This dynamic system means the trust’s exposure to UK IHT can alter during your lifetime, particularly if you move into or out of UK residence. Regular reviews are therefore essential.
How To Determine Your UK Long-Term Residency Status?
You will be considered a UK LTR for tax purposes regardless of where you currently reside if you meet one of the following two conditions:
- You have been a resident in the UK for the previous 10 consecutive years.
- You have been a resident in the UK for 10 years or more in the previous 20 years.
Consequently, your worldwide assets will fall within the scope of IHT, and any existing foreign trusts, including those created before you became an LTR, will generally lose their excluded property status.
Such trusts will instead be treated as relevant property and become subject to IHT when a chargeable event occurs, such as an asset exit or the death of the settlor. (Different rules may apply to specified excluded property that benefited from transitional protection before 30 October 2024.)
Meanwhile, you will be classified as a UK non-LTR if:
- You do not meet either of the LTR tests above (i.e. you have not been UK-resident for 10 consecutive years, nor for at least 10 years within the previous 20).
In addition, under transitional rules, certain individuals may never become LTRs for IHT purposes if all of the following apply:
- You were not UK-domiciled or deemed domiciled on 30 October 2024;
- You are non-resident in the UK for the 2025/26 tax year; and
- You do not subsequently return to UK residence.
IHT exposure may be reduced for non-domiciled expats who are beneficiaries of their own foreign trusts. Such trusts will not be subject to the gift with reservation (GWR) rules, provided that:
- The excluded property was comprised in the settlement immediately before 30 October 2024;
- They remain settled property situated overseas at the time of the chargeable event.
Accordingly, qualifying pre-30 October 2024 excluded property will be treated as excluded property and exempted from the 40% IHT charge upon your death, even if you are considered an LTR at that time.
However, the trust will still be subject to relevant property charges arising from asset exits and 10-yearly anniversary events. A cap on relevant property charges may also apply to qualifying assets under the transitional rules.
10-Year Rule
If you return to the UK after a prolonged period of non-residency, your overseas assets and trusts may remain within the scope of UK IHT for a period determined by how long you were previously UK-resident, due to the tail period during which LTR status continues.
After between 3 and 10 years of non-residency, depending on your previous UK residence history, you will cease to be an LTR. At that point, qualifying non-UK trust assets may again be treated as excluded property, and an exit charge may arise.
Note that leaving the UK as an LTR does not automatically eliminate IHT liability. Your foreign assets, including trusts, may remain subject to IHT for the duration of the tail period after your relocation.
The time it takes to cease being an LTR after moving overseas depends on the number of years previously spent as an LTR, as illustrated in the table below:
| Length of UK Residency in the Last 20 Years | When Long-Term Residence Ends |
|---|---|
| 10–13 years | 3 years |
| 14 years | 4 years |
| 15 years | 5 years |
| 16 years | 6 years |
| 17 years | 7 years |
| 18 years | 8 years |
| 19 years | 9 years |
| 20 years | 10 years |
Expats who had deemed UK domicile status under common law on October 30, 2024 and are non-resident in the UK in 2025-26 will stop being long-term residents for tax purposes after three years of living overseas, as long as they don’t return to the UK.
This rule applies only to individuals meeting the specific transitional conditions above.
What Is the Tax Treatment of a Relevant Property Trust?
Upon acquiring LTR status, any non-uk assets you hold within an excluded property trust will lose their excluded property classification and be treated as relevant property.
Consequently, inheritance tax and associated charges may become payable at specified events, as outlined in the table below: (Please note different treatment may apply to qualifying pre-30 October 2024 excluded property under transitional provisions.)
| Applicable Tax Charge | Tax Rate | When It Is Charged |
|---|---|---|
| Chargeable lifetime transfer (CLT) charge | 20% | If you settle foreign assets under a discretionary trust structure and the value of the assets and other CLTs you have made in the previous seven years exceeds the nil-rate band—currently £325,000—immediate CLT liabilities may arise. This charge applies at the time the assets are transferred into the trust, regardless of your later LTR status. |
| Periodic charge | Up to 6% | As long as the trust is in the relevant property regime, it may be subject to a periodic charge every 10 years if its value exceeds the nil-rate band at the time. The effective rate depends on how much of the nil-rate band is available and the composition of the trust assets. |
| Exit charges | Up to 6% | If you stop being a long-term resident and the trust ceases to be relevant property, an exit charge will be levied. The charge will be applied proportionally to the period the assets were held in the trust since the last periodic charge. Exit charges can also arise when capital leaves the trust while it is in the relevant property regime, regardless of LTR status. |
| Charges on death | Up to 40% | There is no separate 40% IHT charge on the trust fund itself simply because the trust is in the relevant property regime. However, if you die within seven years of making a chargeable lifetime transfer into the trust, the transfer is re-examined on death. Any value above your available nil-rate band may be taxed at up to 40%, with credit for any lifetime tax already paid. Taper relief may reduce this charge if more than three years have passed since the transfer. |
What Are the Benefits of Setting Up an Excluded Property Trust?
Establishing excluded property trusts may provide substantial advantages for UK expats, including:
- Tax efficiency: Excluded property trusts can reduce the value of your taxable estate, and therefore minimise UK inheritance tax charges, enabling you to pass on more wealth to beneficiaries. In addition, income and gains realised by the trust’s investments remain outside your estate and are generally exempt from IHT, provided you don’t acquire LTR status.
- Cross-border estate planning: For expats with beneficiaries residing in multiple jurisdictions, foreign trusts can streamline asset distribution and help mitigate inheritance liabilities across different legal and tax systems.
- Diversified investment opportunities: Excluded property trusts provide access to a broader range of global investment opportunities, potentially increasing growth potential and returns. Holding assets in multiple jurisdictions may also minimise exposure to political or economic instability that may arise in any single jurisdiction.
Who Can Benefit Most From Establishing an Excluded Property Trust?
Any UK expat who is not an LTR may utilise an excluded property trust to mitigate their IHT exposure, since the IHT protection of foreign trusts is no longer determined by the settlor’s domicile at the time of their establishment.
However, to fully maximise the potential IHT benefits, excluded property trusts are typically best utilised by expats who:
- Have substantial non-UK assets
- Have maintained non-LTR status for an extended period, but plan to return to the UK in the future
- Are currently LTRs but will soon cease being one
Using Offshore Investment Bonds Within an Excluded Property Trust
Offshore investment bonds are commonly held within excluded property trusts, as they can be treated as non-UK assets for inheritance tax purposes when properly structured. This enables UK expats to consolidate long-term estate planning with global investment flexibility.
For individuals who may return to the UK, any gains arising on an offshore bond can fall within the new 4-year Foreign Income and Gains (FIG) regime, provided the relevant conditions are met. This may offer opportunities to manage the UK tax impact of policy withdrawals during the FIG period.
It is important to note that the tax treatment of an offshore bond operates separately from the IHT rules governing excluded property trusts.
Eligibility for FIG relief and the long-term effectiveness of holding a bond within a trust will depend on your residency profile, funding history, and broader financial objectives.
Professional cross-border tax and financial advice should therefore be sought to determine whether this approach is appropriate for your circumstances.
How To Set Up an Excluded Property Trust?
Establishing an excluded property trust typically involves the following steps:
- Select an offshore trust jurisdiction: The location of the trust will determine its tax and legal implications. Certain jurisdictions offer favourable tax regimes, robust asset protection laws, and stable economic environments, promoting financial security and effective estate planning for expats. You should also consider the jurisdiction’s regulatory standards, reporting requirements, and how it treats non-UK trust assets under local law.
- Choose a holding company: Once you have chosen your preferred jurisdiction, select an appropriate offshore investment company or investment structure to hold the trust assets. It is essential to evaluate the company’s features, benefits, and investment vehicles to ensure alignment with your financial objectives. In some cases, holding companies are used for administrative efficiency or asset protection, but professional legal advice should confirm whether one is necessary.
- Appoint trustees: Whether individuals or corporate entities, trustees are responsible for managing the trust and distributing assets to beneficiaries in accordance with your instructions. If appointing an individual, opt for a reputable and trustworthy person with considerable legal and financial knowledge to ensure prudent management of the trust’s assets. Corporate trustees in established trust jurisdictions are often preferred for governance, succession continuity, and familiarity with cross-border tax rules.
- Draft the trust deed: Outline the terms of the trust, such as the names of your trustees, the people who should benefit from the trust, how the assets are to be distributed, and the description and value of the property or monetary capital that will be placed in the trust. The deed should also specify any reserved powers, investment authority, and guidance on how trustees should exercise discretion, taking account of UK anti-avoidance rules.
- Complete the necessary forms: The trustee or trust service provider will provide the relevant documents that need to be completed by you and/or your trustees to establish the trust, or in the case of an existing trust, to add new assets. You may also need to comply with registration or reporting requirements in the trust jurisdiction and in the UK, depending on the structure and residency of the settlor or trustees.
- Fund the trust: To activate the trust, you must transfer the foreign assets you want to settle into it. You can accomplish this by directly depositing cash or investments into the trust or transferring legal ownership of the property to the trustees. Care should be taken to confirm the assets are non-UK situated at the time of settlement, as only foreign assets can qualify as excluded property under the post-2025 rules.
Why Expats Should Consult a Cross-Border Financial Advisor Before Establishing an Excluded Property Trust
Establishing excluded property trusts requires careful planning and a clear understanding of the UK’s complex tax framework to ensure their effective use.
Improper structuring or poorly timed movements before and after creating foreign trusts intended to secure excluded property status may result in unintended liabilities, such as the loss of IHT protection and potential exposure to capital gains tax or income tax, depending on residency and asset type.
Additionally, the post–6 April 2025 long-term residence (LTR) rules mean that excluded property status can change over time, making ongoing monitoring essential.
Engaging our expat financial advisers at Titan Wealth International is highly recommended when setting up excluded property trusts.
We can help you analyse your specific situation and determine how best to approach establishing the trust while mitigating exposure to UK IHT. This includes assessing whether non-UK assets qualify as excluded property under current rules and how future changes in residence may affect trust taxation.
Our advisers can also review the structure of your existing offshore trusts to assess their current status and estimate when you may acquire LTR status based on your relocation plans.
Leveraging these insights, we can offer tailored recommendations to optimise both existing and future trusts, ensuring your estate planning aligns with your long-term financial objectives and facilitates tax-efficient asset transfers to your beneficiaries.
Where appropriate, we may also coordinate with legal and tax specialists in relevant jurisdictions to ensure compliance with cross-border reporting, trust law requirements, and the transitional protections available under the 2025 reforms.
Complimentary Excluded Property Trust Consultation
Establishing or reviewing an excluded property trust as a UK expat requires careful coordination across tax, residency, investment structure, and cross-border estate-planning rules.
In a complimentary introductory consultation with Titan Wealth International, you will:
- Assess whether your non-UK assets can qualify as excluded property under the post–2025 long-term residence (LTR) rules and how future relocation plans may affect IHT exposure.
- Review the structure and effectiveness of existing offshore trusts, including transitional protections, reporting considerations, and opportunities for optimisation.
- Explore suitable trust and investment solutions—including offshore bonds—designed to support global mobility, long-term wealth preservation, and tax-efficient intergenerational planning.
Key Takeaway
Excluded property trusts can be a valuable instrument for UK expats who want to protect their non-UK assets and investments from UK inheritance tax while leaving a legacy for their heirs.
Their effectiveness depends on the assets qualifying as excluded property at the time an IHT charge arises and on the settlor’s long-term residence (LTR) status under the post–6 April 2025 rules.
In this article, we have explained how excluded property trusts work before and after April 6, 2025, and the ways in which your long-term residency (LTR) status impacts their tax treatment.
We have also detailed the process of setting up an excluded property trust, highlighted scenarios in which creating one may be highly beneficial, and outlined the tax implications that may arise when a trust loses its excluded property status. Regular reviews are essential, particularly for expats whose residence status may change over time.
Collaborating with experienced financial and tax advisors when establishing and managing excluded property trusts is essential to ensuring accurate implementation, ongoing compliance, and tax-efficient outcomes.
At Titan Wealth International, we specialise in providing multi-jurisdictional support for expats seeking offshore asset protection and reduced tax liability.
Our bespoke estate planning services take into account your unique circumstances and financial goals to optimise the structure and effectiveness of your trusts and other estate planning tools to ensure long-term wealth preservation.
Where required, we also work alongside legal and tax specialists to ensure cross-border requirements are met and that planning remains aligned with evolving UK and international tax rules.
The information provided in this article is not a substitute for personalised financial, tax or legal advice. You should obtain financial advice and tax advice tailored to your particular circumstances and in respect of any jurisdictions where you may have tax or other liabilities. Titan Wealth International accepts no liability for any direct or indirect loss arising from the use of, or reliance on, this information, nor for any errors or omissions in the content.
