On 21 June 2001 the settlor, who was then non-domiciled in the UK, settled cash derived from a Jersey bank account on the trusts of a Jersey-resident discretionary trust called the Michael Dreelan Trust (MDT). The settlor became deemed domiciled in the UK for inheritance tax purposes from the beginning of the tax year 2003/04. Subsequently, on 4 April 2008, the settlor and others set up another settlement called the Dreelan Brothers Joint Trust (DBJT) and 25,000 ordinary shares in Qserv Limited were transferred from the MDT. These were later sold for cash that was UK situs property. On 2 June 2011 the DBJT transferred cash to the MDT through bank accounts held in the UK. The MDT then reinvested that cash in bank accounts held in Jersey and the ten-year anniversary of the creation of the settlement followed on 21 June 2011. HMRC served a notice of determination that the trust property was not ‘excluded property’ for the purposes of inheritance tax and therefore a periodic charge arose on the ten-year anniversary of the MDT. The trustees appealed.
Held (dismissing the appeal):
Where, as in this case, property moved from one settlement to another, it fell to be treated as remaining comprised within the first of them but had not retained its character as ‘excluded property’ because, at the time the settlement was made, the settlor had lost his non-domiciled status. For this purpose ‘settlement’ referred to the disposition (as distinct from the trust) and the ‘time’ referred to the occasion when the trust property once again became part of the MDT. It was not the intention of parliament to allow ‘excluded property’ status to property contributed later by a domiciled settlor merely because, when the settlement was created, he was at that time non-domiciled.JUDGMENT MANN J: Introduction  This is an appeal by the taxpayer against a determination of a liability for inheritance tax said to arise in relation to the ten year charge applicable to trusts. At the heart of the case is the question of whether certain property is ‘excluded property’ for the purposes of the …