A controversial issue on this subject has recently been considered by the tribunal in the case of Accuro Trust (Switzerland) SA v HMRC [2025] UKFTT 464 (TC) (reported in Tax Journal, 16 May 2025).
It is well known that before July 2020 settled property was excluded property if it was situated outside the UK and the settlor was not UK domiciled ‘at the time the settlement was made’ (IHTA 1984 s 48(3)). A question has arisen for many years about the position if the settlor adds property to an existing settlement after he has become UK domiciled (or deemed domiciled).
HMRC took the view that the adding of new property was the making of a new settlement and if the addition took place after the settlor had become UK domiciled, the property could not qualify as excluded property.
Wrong, said (nearly) everybody else. The added property did not represent a new settlement; the settlement had already been made. And the HMRC interpretation makes a nonsense of a whole host of other provisions. And anyway, the Court of Appeal had rejected the HMRC view in Barclays Wealth Trustees (Jersey) Ltd v HMRC [2017] EWCA Civ 1512.
The issue was sort of resolved by a change in the law. FA 2020 s 73 revised s 48(3) to provide that the foreign property will only be excluded property if the settlor was not UK domiciled ‘at the time the property became comprised in the settlement’ (emphasis added).
However, the issue continues to arise in respect of many existing trusts; but having regard to the Court of Appeal decision in Barclays Wealth, you may wonder why the point was raised again, in the case of the Accuro Trust.
It is because the case was about a repayment of tax which had been made on the basis of the HMRC incorrect interpretation of s 48(3). HMRC claimed that their view was generally received or adopted in practice. If that was the case, the repayment sought by the taxpayer would be denied by IHTA 1984 s 255 which provides:
‘Where any payment has been made and accepted in satisfaction of any liability for tax and on a view of the law then generally received or adopted in practice, any question whether too little or too much has been paid or what was the right amount of tax payable shall be determined on the same view, notwithstanding that it appears from a subsequent legal decision or otherwise that the view was or may have been wrong.’
Books, publications and other evidence from a long list of highly distinguished tax lawyers demonstrated that the HMRC view was widely rejected, and the FTT found that s 255 did not apply. All very interesting reading.
This (possibly obscure) provision is not new; it has been around for decades, and similar provisions apply for discovery assessments in TMA 1970 s 29(2) – and in FA 1998 Sch 18 para 45 for companies, as well as for PAYE.
This approach, that it does not matter that the view was wrong if that is what everybody thought at the time, does rather stand in contrast with the modern approach to taxation which is much more concerned by ‘the right amount of tax’.
This is perhaps exemplified by the words of the Court of Appeal in Aozora GMAC Investment Ltd v HMRC [2019] EWCA Civ 1643:
‘it is necessary for [the taxpayer] to show a high degree of unfairness arising in its particular circumstances in order to override the public interest in HMRC collecting taxes in accordance with a correct interpretation of the law’.
In the current environment, it will always be possible to say that the public interest in collecting the right amount of tax according to the law must trump the interests of an individual taxpayer who has been disadvantaged.
This places HMRC in a win/win position. If their view is right, they win. And if they are in the wrong, they can still win. Although interestingly not in this particular case.
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IHT excluded property settlements
Further clarification on IHTA 1984 s 48(3).
A controversial issue on this subject has recently been considered by the tribunal in the case of Accuro Trust (Switzerland) SA v HMRC [2025] UKFTT 464 (TC) (reported in Tax Journal, 16 May 2025).
It is well known that before July 2020 settled property was excluded property if it was situated outside the UK and the settlor was not UK domiciled ‘at the time the settlement was made’ (IHTA 1984 s 48(3)). A question has arisen for many years about the position if the settlor adds property to an existing settlement after he has become UK domiciled (or deemed domiciled).
HMRC took the view that the adding of new property was the making of a new settlement and if the addition took place after the settlor had become UK domiciled, the property could not qualify as excluded property.
Wrong, said (nearly) everybody else. The added property did not represent a new settlement; the settlement had already been made. And the HMRC interpretation makes a nonsense of a whole host of other provisions. And anyway, the Court of Appeal had rejected the HMRC view in Barclays Wealth Trustees (Jersey) Ltd v HMRC [2017] EWCA Civ 1512.
The issue was sort of resolved by a change in the law. FA 2020 s 73 revised s 48(3) to provide that the foreign property will only be excluded property if the settlor was not UK domiciled ‘at the time the property became comprised in the settlement’ (emphasis added).
However, the issue continues to arise in respect of many existing trusts; but having regard to the Court of Appeal decision in Barclays Wealth, you may wonder why the point was raised again, in the case of the Accuro Trust.
It is because the case was about a repayment of tax which had been made on the basis of the HMRC incorrect interpretation of s 48(3). HMRC claimed that their view was generally received or adopted in practice. If that was the case, the repayment sought by the taxpayer would be denied by IHTA 1984 s 255 which provides:
‘Where any payment has been made and accepted in satisfaction of any liability for tax and on a view of the law then generally received or adopted in practice, any question whether too little or too much has been paid or what was the right amount of tax payable shall be determined on the same view, notwithstanding that it appears from a subsequent legal decision or otherwise that the view was or may have been wrong.’
Books, publications and other evidence from a long list of highly distinguished tax lawyers demonstrated that the HMRC view was widely rejected, and the FTT found that s 255 did not apply. All very interesting reading.
This (possibly obscure) provision is not new; it has been around for decades, and similar provisions apply for discovery assessments in TMA 1970 s 29(2) – and in FA 1998 Sch 18 para 45 for companies, as well as for PAYE.
This approach, that it does not matter that the view was wrong if that is what everybody thought at the time, does rather stand in contrast with the modern approach to taxation which is much more concerned by ‘the right amount of tax’.
This is perhaps exemplified by the words of the Court of Appeal in Aozora GMAC Investment Ltd v HMRC [2019] EWCA Civ 1643:
‘it is necessary for [the taxpayer] to show a high degree of unfairness arising in its particular circumstances in order to override the public interest in HMRC collecting taxes in accordance with a correct interpretation of the law’.
In the current environment, it will always be possible to say that the public interest in collecting the right amount of tax according to the law must trump the interests of an individual taxpayer who has been disadvantaged.
This places HMRC in a win/win position. If their view is right, they win. And if they are in the wrong, they can still win. Although interestingly not in this particular case.
