IHT liability

[mill]

A distant relative of British nationality is under care in the UK. She resided in the United States for many years, but with the onset of vascular dementia elected to return to the UK and enter a care home. Her dementia condition is now considerably advanced

She is the sole beneficiary of a trust set up by her late husband in America, and the trustee is their American attorney. All the assets of the trust are held in the United States. As trustee, her American attorney provides from the trust all the financial resources required to support this elderly lady in the UK. Income from the trust is deemed to be received by this lady and is therefore declared to HMRC on her behalf and taxed accordingly in the UK.

The terms of the trust are such that on her demise the considerable assets of the trust will go to American charities. We have been informally advised that assets left to charities are exempt from inheritance tax, but that this exemption will only be granted by HMRC if the recipient charities are located in the UK or Europe. If left to charities located in the United States, which is presently the case, they will be subject to UK inheritance tax.

As we have no direct responsibility in this matter, we would not wish to draw the IHT risk issue to the attention of the American Trustee if the information shown above relating to inheritance tax is incorrect. Any clarification would be much appreciated

[maths]

Unfortunately, under UK law (and tax law) charities are a complex area full of ambiguities and complex interactions.

It is unclear from your posting what precisely is the nature of the "trust", for example, a bare trust or an interest in possession "settlement.

The domicile status of the relative and her husband is not stated.

In very general terms, as the charities who are to benefit are USA based means that donations thereto are not eligible for UK tax (including IHT) relief.

However, it may be that for UK IHT purposes the property is "excluded" property and hence outside the ambit of IHT.

The UK/USA IHT treaty may also be relevant.

In view of the "considerable assets" I would suggest that formal tax advice should be taken.