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.