06 Oct 2025

Taxation Readers’ Forum: Channel Islands loan and IHT ten-year charges

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Writing for Taxation magazine’s Readers’ Forum, BKL private client tax specialist Terry Jordan answers a query about the UK inheritance tax (IHT) implications of a loan made by a Jersey excluded property trust to an unconnected Gibraltar investment company.

The tax query

‘Can readers comment on where the situs of a loan is for the purpose of the UK inheritance tax ten-year charges? The loan was made by a Jersey excluded property trust (non-domiciliary, non-UK resident settlor) to an unconnected Gibraltar investment company, which is non-UK incorporated but is UK tax-resident by virtue of its shareholders and directors being resident in the UK.

The Gibraltar company has used the funds to acquire UK hotels for investment purposes and pays interest with 20% withholding tax deductions. Is it correct that the loan is non-UK sited as it can only be legally enforced in the country of incorporation, not residence, and therefore the Jersey trust has no ten-year charge exposure?’ Query 20,591– Footloose.

Terry Jordan’s reply: Location, location, location

‘Footloose’s query relates to the situs of an asset for inheritance tax purposes. Historically the scope of IHT was determined by the domicile (including deemed domicile by virtue of long-term UK residence for taxation purposes) of an individual or, in the case of settled property, the domicile of the settlor when the trust was created. For some time, there was a debate about the correct treatment of property added to a settlement after the settlor had become domiciled or deemed domiciled within the UK. The relevant legislation was changed after Dreelan [2017] STC 2465 to make it clear that additions made after the settlor had become domiciled in the UK could not be excluded property.

For individuals and settled property with a non-UK domiciled settlor, non-UK assets, authorised unit trusts and shares in open-ended investment companies (OEICS) were excluded property and outside the scope of IHT. From 6 April 2025, what matters is the residence status of the individual or settlor. For settled property the rules are set out in IHTM27220:

‘Where the chargeable event occurs on or after 6 April 2025, whether foreign settled property is excluded property depends on whether the settlor is alive at the date of the chargeable event.

For chargeable events on or after 6 April 2025, if the settlor was alive at the date of the chargeable event, foreign settled property will be excluded property if the settlor was not a long-term UK resident at that date.

For chargeable events on or after 6 April 2025, if the settlor had died before the date of the chargeable event, then:

  • if the settlor died on or after 6 April 2025, foreign settled property will be excluded property if the settlor was not a long-term UK resident immediately before their death;
  • if the settlor died before 6 April 2025, foreign settled property is excluded property where the settlor was domiciled outside the UK at the time when the property became comprised in the settlement.’

In this case we are told that the settlor was non-domiciled and non-resident and the loan was made by a Jersey trust to a Gibraltar company. The general rule is that a simple contract debt is situated in the country where the debtor resides.

On the face of it the loan is excluded property for IHT purposes, and as hotels are not UK residential property IHTA 1984, Sch A1 is not in point. There is a discussion of situs in the recently issued joint response to the Law Commission report on digital assets.’

The full article was published in Taxation magazine (issue 5004) and is available to subscribers here on the Taxation website.

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Our private client tax team can provide expert advice on IHT, trusts, tax-efficient estate planning and the tax implications of situations involving more than one jurisdiction. We advise individuals (including non-doms), trustees and families.

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