Barclays Wealth Trustees (Jersey) Ltd & Anor v HM Revenue & Customs

For the inheritance-tax exclusion for foreign property, the relevant question is when the particular property was settled. A later disposition adding property to an existing settlement is a settlement of that property for section 48(3)(a) of the Inheritance Tax Act 1984. The settlor’s domicile is therefore tested at that later time. This determines excluded-property status only; it does not create a separate settlement for calculating the ten-year charge under Chapter III. A deeming provision operating for Chapter III purposes does not erase the real-world disposition for other purposes of the Act.

The appellants challenged an inheritance-tax determination under section 222(3)(b) of the Inheritance Tax Act 1984. Property initially settled into the Michael Dreelan Trust when the settlor was non-UK domiciled was transferred to a second trust after he became UK domiciled and later appointed back to the original trust.

HMRC treated the returned property as non-excluded property for the original trust’s ten-year charge. The central issue was whether section 48(3)(a) tested domicile when the original trust was created or when the returned property was subsequently settled into it.

1. Appeal dismissed. The returned property was not excluded property on the relevant ten-year anniversary.
2. Section 48(3)(a) of the Inheritance Tax Act 1984 requires attention to the time when the particular property was settled. The statutory concept of settlement includes the disposition by which property becomes held on trust, together with the resulting trust structure. The word “made” points to an act of disposition rather than only to the creation of the overall trust.
3. Although the original settlement was created when the settlor was non-UK domiciled, the property returned from the second trust was settled into the original trust after the settlor had become UK domiciled. It therefore failed the domicile condition in section 48(3)(a).
4. This construction does not split the original trust into separate settlements for the ten-year charge. Sections 60, 61 and 64 refer to the overall settlement and its commencement, while section 48(3) identifies excluded property. The overall settlement remained the original trust.
5. Section 81 operates only for Chapter III purposes. It treats property moving between settlements as remaining in the first settlement for the periodic-charge rules, but does not deem that the real-world disposition never occurred or extend the fiction into section 48.
6. Rysaffe Trustee Co (CI) Ltd v Inland Revenue Commissioners did not require a different result. It concerned the identification of settlements under the general law and did not decide the meaning of “the time the settlement was made” in section 48(3)(a).

The judgment records an appeal against HMRC’s notice of determination dated 23 April 2013. Leave to appeal was granted by Peter Smith J on 25 November 2014. The High Court dismissed the appeal.