DUMMY SETTLOR

An offshore trust was set up using an offshore dummy settlor. The economic settlor was UK domiciled and died in 2004, he or his wife could never benefit from the settlement.

£10million was settled in 1995, had grown to £15m by 2005, £25m by 2015 and now worth £30m.

As the economic settlor was UK domiciled the trust is a relevant property trust for IHT purposes and the trustees would have certain IHT obligations with regards to the initial settlement (20%) and principal charges (6%).

The IHT due is £2m for the Chargeable Lifetime Trust, £900k in 2005 and £1.5m in 2015 – a total of £4.4m. Interest will be another £2m.

HMRC impose a penalty of 200% – £8.8m and a further asset based penalty of 10% – £3m.

Total settlement in respect of IHT – £18.2m, just over 60% of the trust assets.