Excluded Property Trusts for Non-UK Domiciliaries: A Planning Guide

The Most Powerful IHT Planning Tool for Non-UK Domiciliaries

For individuals who are not domiciled in the United Kingdom, the excluded property trust (EPT) has historically represented one of the most powerful — and legitimate — inheritance tax planning opportunities available under UK law.

The basic principle is straightforward: under the rules that applied until 5 April 2025, non-UK assets settled into an offshore discretionary trust by a non-UK domiciliary became excluded property for UK inheritance tax purposes, and that status was determined once and for all at the time of settlement — so the assets remained outside the scope of UK IHT even if the settlor later became deemed domiciled in the UK. The trust was, in effect, a structure that locked in the IHT position at the time of settlement.

This changed fundamentally on 6 April 2025. The non-dom reform package abolished domicile as the connecting factor for IHT and replaced it with a residence-based test. For periods from 6 April 2025, whether non-UK assets held in a trust are within the scope of UK IHT is tested by reference to whether the settlor is a long-term UK resident — and this is assessed on an ongoing basis, regardless of when the trust was settled. The "settle once and lock in forever" model no longer works for new value, and existing trusts are affected too. This guide explains how EPTs worked, what has changed, and the much narrower role they now play.

All information reflects the position as of 2026. Non-dom and IHT law in this area has been subject to significant change and will likely continue to evolve — professional advice is essential.

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The Basic IHT Framework for Non-UK Domiciliaries

Under UK inheritance tax law (Inheritance Tax Act 1984, as amended), the position until 5 April 2025 was:

• UK-domiciled individuals were charged to IHT on their worldwide assets at death (and on certain lifetime transfers).
• Non-UK domiciled individuals (including "remittance basis users") were charged to IHT only on UK-situs assets — assets physically located in, or legally based in, the United Kingdom. Their non-UK assets fell outside the scope of UK IHT entirely.

From 6 April 2025 this domicile-based framework was replaced by a residence-based one (see below): worldwide assets are within the scope of UK IHT once an individual is a long-term UK resident, with non-UK assets outside scope only while that status does not apply. The remainder of this section describes the historical domicile framework because it shaped EPT planning and still affects existing trusts.

Until 5 April 2025, this meant a non-UK domiciliary could hold an offshore investment portfolio, overseas real estate, and foreign company shares free of UK IHT indefinitely — provided they remained non-UK domiciled and did not become deemed domiciled.

Under that pre-2025 regime, long-term UK residents became deemed domiciled after 15 of the preceding 20 tax years of UK residence, at which point their worldwide assets became subject to UK IHT. The excluded property trust was the mechanism by which non-UK assets could be preserved outside the UK IHT net even after the settlor became deemed domiciled.

Important: the deemed-domicile "15 of 20 years" test was abolished for IHT from 6 April 2025. It is described here for context and because it remains relevant to the historical treatment of trusts settled before that date. The current test is the residence-based long-term UK resident test described below.

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What Is an Excluded Property Trust?

An EPT is typically a offshore discretionary trust settled by a non-UK domiciliary, holding non-UK assets. The key legal definition is in s.48(3) IHTA 1984 (as amended):

Property comprised in a settlement is excluded property if the settlor was not domiciled in the United Kingdom at the time the settlement was made, and the property is situated outside the United Kingdom.

In plain terms: if you were non-UK domiciled when you settled the trust, and the trust holds non-UK assets, those assets are excluded property. They fall outside the relevant property regime entirely — no entry charge, no ten-year charge, no exit charge, no IHT at all.

Under the law as it stood until 5 April 2025, this status was not lost if the settlor subsequently became deemed domiciled — the excluded property character was fixed at the time of settlement. This is no longer the position for periods from 6 April 2025: as explained below, foreign assets in a trust now fall within the scope of UK IHT for any period during which the settlor is a long-term UK resident, whenever the trust was settled. The "settle before deemed domicile and lock in forever" strategy that drove EPT planning for decades no longer achieves a permanent shelter.

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The Post-April 2025 Landscape

The non-dom reforms that took effect from 6 April 2025 made fundamental changes to the treatment of EPTs. The headline changes are:

1. Trust Assets Are Now Tested by the Settlor's Residence — Whenever the Trust Was Settled

This is the most important change, and it overturns the previous understanding. From 6 April 2025, non-UK assets held in a settlor-interested-type trust are within the scope of UK IHT (under the relevant property regime, and potentially as part of the settlor's estate via the gift-with-reservation rules) for any period during which the settlor is a long-term UK resident — and this applies regardless of whether the trust was settled before or after 6 April 2025. There is no blanket grandfathering that preserves the old excluded property status for pre-6 April 2025 trusts. Date of settlement no longer determines the outcome by itself.

The transitional protection that does exist is narrow: for trusts that held excluded property on 30 October 2024, the relevant property ten-year and exit charges are subject to a cap of £5 million of value per ten-year cycle — a limit on the charge, not an exemption from it. Specialist advice is essential to understand how a specific existing trust is affected.

2. New EPT Settlements From 6 April 2025

A non-UK-resident person, or a new arriver within the four-year Foreign Income and Gains (FIG) regime (which replaced the remittance basis from 6 April 2025), may still settle a trust holding non-UK assets that are outside the scope of UK IHT — but only for so long as the settlor is not a long-term UK resident. Once the settlor becomes a long-term UK resident, the foreign trust assets come within the IHT net, and they fall back out again only when long-term resident status is lost (subject to the IHT "tail").

3. The Long-Term UK Resident Test

The connecting factor for IHT is now whether an individual is a long-term UK resident (LTR) — broadly, UK resident for at least 10 of the previous 20 tax years. Once that threshold is met, worldwide assets (including foreign assets settled into trust) are within scope. After leaving the UK, an individual who has been resident for 20 years remains within the IHT net for up to 10 years (a shorter "tail" applies to shorter periods of residence). This residence-based test replaced both the old domicile concept and the 15-of-20-year deemed domicile rule.

4. UK Residential Property

UK residential property held indirectly through an offshore company or partnership (so-called "enveloped" property) has been within the scope of UK IHT since 6 April 2017 under Schedule A1 to the Inheritance Tax Act 1984 (introduced by the Finance (No. 2) Act 2017). Directly held UK property has always been UK-situs and within IHT. This remains the case. Holding UK residential property inside an EPT — directly or through a company — does not shelter it from UK IHT.

5. Additions to Trusts

Making an addition to an existing trust at a time when, under the current rules, the settlor is a long-term UK resident brings the added value within the scope of UK IHT. Under the old regime the equivalent point was that additions made while the settlor was UK domiciled or deemed domiciled created non-excluded property. Either way, great care is required when adding further assets to an existing trust.

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Typical Structure of an EPT

A classic EPT structure:

1. Settlor: Non-UK domiciliary (often a long-term UK resident approaching deemed domicile, or a newly arrived high-net-worth individual)
2. Trust jurisdiction: Jersey, Guernsey, Cayman, or another well-regarded offshore centre
3. Trust type: Offshore discretionary trust — the discretionary element is important for UK income tax and CGT flexibility
4. Assets: Cash, listed securities, offshore investment funds, private company shares (non-UK situs), life insurance policies — all non-UK
5. Trustees: Professional licensed trust company in the chosen jurisdiction
6. Protector: Optional but often included — a trusted individual (family lawyer, close friend) who can direct or veto trustee actions
7. Beneficiaries: The settlor's family (spouse, children, remoter issue); the settlor may or may not be a potential beneficiary (see settlor-interested trust rules)

The trust deed is governed by the law of the offshore jurisdiction. A letter of wishes from the settlor guides trustees on how to distribute income and capital.

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Income Tax and CGT Considerations for EPT Settlors

While an EPT eliminates the IHT exposure on the settled assets, UK income tax and capital gains tax issues remain:

Settlor-Interested Trusts

If the settlor is within the class of beneficiaries (can potentially benefit from the trust), the trust is settlor-interested for income tax purposes (s.624 ITTOIA 2005). Trust income is attributed to the settlor and taxed at their marginal rate, regardless of whether it is actually distributed. Similarly, trust gains may be attributed to the settlor under s.86 TCGA 1992.

Some EPTs exclude the settlor entirely from the class of beneficiaries to avoid this treatment — but this requires the settlor to be comfortable that they cannot personally benefit. More commonly, EPTs include the settlor in the beneficiary class (providing a safety net) and the settlor accepts the income tax cost.

The Transfer of Assets Abroad Rules

s.720 ITA 2007 can attribute offshore trust income to a UK-resident individual who has transferred assets abroad if they retain power to enjoy the income. These rules interact with EPT structures in complex ways and require specialist advice.

The Section 86 CGT Attribution Rules

Trust gains may be attributed to UK-resident settlors under s.86 TCGA 1992 and to UK-resident beneficiaries under s.87 in certain circumstances. Expert advice on these provisions is essential before establishing an EPT.

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Timing Under the New Rules

Before 6 April 2025, the key planning point was to settle non-UK assets into an EPT before acquiring deemed domicile (15 years of UK residence), thereby locking in excluded property status for good. That window has closed, and the strategy no longer delivers a permanent shelter.

Under the current residence-based regime, timing still matters, but in a different way:

• Foreign assets in a trust escape UK IHT only for periods when the settlor is not a long-term UK resident (broadly, before reaching 10 of the last 20 years of UK residence, and again once that status falls away after leaving the UK, subject to the IHT tail of up to 10 years).
• A new arriver who settles a trust while still outside long-term-resident status, and who later leaves the UK before crossing the threshold, may keep foreign trust assets outside the IHT net — but anyone who becomes a long-term UK resident will bring those assets within scope.
• Any settlement must be correctly documented, genuinely constituted, and compliant with all applicable rules. Rushing it without proper advice is dangerous.

Because the old "lock-in" no longer applies and the rules now turn on residence over time, projecting the settlor's likely UK residence path is central to the planning. Specialist advice is essential.

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What Assets Should Go Into an EPT?

The most valuable assets for EPT settlement are:

• Large offshore investment portfolios
• Non-UK real estate (not UK residential property, which remains within scope)
• Interests in offshore holding companies or operating businesses
• Offshore pension arrangements (subject to specific rules)
• Life insurance policies on non-UK lives or held offshore

UK assets — including UK cash, UK shares, and UK real property — are not excluded property regardless of the trust structure. They remain within the UK IHT net.

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Practical Steps

1. Clarify your residence position — since 6 April 2025 the IHT test is residence-based, not domicile-based. Establish your UK tax residence history and likely future path. (Domicile remains relevant for some other purposes and for the historical treatment of existing trusts.)

2. Assess the long-term UK resident clock — when have you reached, or when will you reach, 10 of the last 20 UK tax years, and how long would the IHT "tail" run if you left?

3. Identify settleable assets — what non-UK assets do you have that would benefit from EPT protection?

4. Consider the CGT cost of settlement — settling assets into a trust may crystallise a capital gain. Model the cost.

5. Choose a jurisdiction — Jersey and Guernsey are most commonly used for UK-connected EPTs.

6. Instruct specialist advisers — UK trust and tax lawyers with international expertise, working alongside offshore trust lawyers and a licensed professional trustee.

7. Draft and execute the trust — the trust must be genuinely constituted; assets must actually be transferred to the trustees.

8. Keep the trust under review — annual trustee meetings, investment reviews, and updating the letter of wishes.

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How Global Investments Can Help

Global Investments specialises in excluded property trust planning for non-UK domiciliaries. We work with specialist UK tax counsel and offshore trust lawyers across Jersey, Guernsey, and Cayman to design and implement EPT structures that are robust, compliant, and aligned with your long-term wealth planning goals.

The 6 April 2025 reforms have materially narrowed what excluded property trusts can achieve, and existing structures should be reviewed in light of the new residence-based rules. If you hold, or are considering, an offshore trust, we urge you to take advice promptly.

Contact us today for a confidential assessment of your position.

This guide is for general information only and does not constitute legal or tax advice. Non-dom and IHT legislation has been subject to significant recent change. Always seek specialist professional advice before taking any action. As of 2026.