IHTM27241 - Foreign property: specific British Government Securities: introduction
‘Government securities’ is a term we use to describe securities issued by the Treasury. These are also known as ‘gilts’. The Treasury can issue securities with the condition that they are exempt from UK taxation so long as they are in the beneficial ownership of persons who are not resident in the UK. Securities issued with this condition are known as FOTRA (free of tax to residents abroad) gilts.
Before 6 April 2013, FOTRA securities were issued with the requirement that the beneficial owner (IHTM04031) had to be ‘ordinarily resident’ outside the UK (IHTM13025). This requirement still applies to FOTRA securities acquired before that date.
Before 6 April 1998, FOTRA securities or gilts were issued with the additional requirement that the beneficial owner (IHTM04031) had to be domiciled (IHTM13000) as well as ordinarily resident outside the UK. The domicile requirement still applies to FOTRA securities that were issued before 29 April 1996.
Under FA40/S60(1), the Treasury has powers to modify the terms of issue of a Government security so as to change the scope of the exemption. These powers were exercised so that with effect from 6 April 1998 all gilts were deemed to be FOTRA gilts. So, for deaths and other chargeable events on or after 6 April 1998, all government securities are excluded property (IHTM04251) for Inheritance Tax purposes if the beneficial owner was ordinarily resident outside the UK (or, for securities acquired after 6 April 2013, simply resident outside the UK).
The only exception is three and a half per cent War Loan, where the additional domicile condition still applies to deaths or other chargeable events on or after 6 April 1998.
So, in summary,
- FOTRA securities issued before 29 April 1996 will be exempt as long as the beneficial owner is both domiciled and ordinarily resident outside the UK.
- three and a half per cent War Loan 1952 or after will be only be exempt if the beneficial owner is both domiciled and ordinarily resident outside the UK, even if the chargeable event is after 6 April 1998.
- All government securities issued without FOTRA conditions before 6 April 1998 will be exempt from that date provided the beneficial owner is ordinarily resident outside the UK. Domicile is relevant only for three and a half percent War Loan.
- All government securities issued between 29 April 1996 and 5 April 2013 will be exempt provided the beneficial owner is ordinarily resident outside the UK. Domicile is relevant only for three and a half percent War Loan.
- All government securities acquired on or after 6 April 2013 will be exempt provided the beneficial owner is resident outside the UK. Domicile will be relevant only for any future issue of three and a half percent War Loan.
You can find more guidance on FOTRA gilts at IHTM04291 onwards