For trustees of offshore trusts the practical question is which statutory section governs the post-Finance-Act-2025 excluded-property analysis. The popular commentary points at Schedule 13 paragraphs 40 to 46 and at the headline reform of section 6 of the Inheritance Tax Act. Neither location is the operative pivot for trust property. The substantive change to offshore-trust excluded-property treatment lives at a brand-new section: IHTA 1984 section 48ZA, titled "Excluded property: property situated outside the UK etc", inserted by Finance Act 2025 section 45 with effect from 6 April 2025. The same provision deletes the historic s.48(3) to (3F) machinery in full.

This page is the trust-side operational companion to the section 6A long-term-resident test pillar. The s.6A pillar covers the individual-level LTR test that A8 references for the settlor-status determination; A8 covers the offshore-trust excluded-property mechanics that depend on that LTR test. The two pages are companions; A8 does not re-walk the s.6A test and assumes the reader has either applied it or will apply it to the settlor independently.

The new statutory location: section 48ZA, not the old s.48(3) and not Schedule 13 paragraphs 40 to 46

FA 2025 s.45 performs two operations on IHTA 1984 section 48:

  • Heading change. Section 48's heading is amended to "reversionary interests and Treasury securities" (narrowing it to the residual subject-matter that survives the reform).
  • Subsection deletion plus insertion. The pre-reform domicile-based excluded-property machinery at s.48(3) to (3F) is deleted in full. A new section 48ZA is inserted ahead of s.48, picking up the substantive offshore-trust treatment in eleven subsections.

The location matters because some commentary asserts that the trust-side pivot lives in Schedule 13 paragraphs 40 to 46. Those paragraphs are predominantly amendments to two sets of administrative regulations (the Excepted Estates Regulations 2004 and the Excepted Settlements Regulations 2008), plus commencement (para 45) and a narrow pre-commencement-emigrants exemption (para 46). The substantive offshore-trust architecture is in s.48ZA itself, not in the Schedule 13 administrative paragraphs.

The s.48ZA architecture in eleven subsections

Section 48ZA applies to settled property situated outside the United Kingdom or to a holding in an authorised unit trust or a share in an open-ended investment company. Where it applies, section 6(1) and (1A) (the general individual-level excluded property rule) is displaced. The substantive operative subsections are:

  • s.48ZA(2): If the settlor is alive, the property is excluded property at any time when the settlor is not a long-term UK resident.
  • s.48ZA(3): If the settlor died on or after 6 April 2025, the property is excluded property if the settlor was not a long-term UK resident immediately before they died.
  • s.48ZA(4): If the settlor died before 6 April 2025, the property is excluded property if the settlor was not domiciled in the United Kingdom when the property became comprised in the settlement.

Those three subsections together cover the three settlor states (alive; died post-reform; died pre-reform) and produce three distinct tests. The pivotal architectural decision is at s.48ZA(4): the historic domicile-at-settlement test is preserved in full for pre-6-April-2025 deceased settlors. There is no retroactive retest of pre-2025 trusts settled by deceased non-doms; their property remains excluded under the test that was operative when the property entered the trust.

The remaining subsections handle interactions and carve-outs:

  • s.48ZA(5): The exclusions at (2) and (3) do not apply where a beneficiary holding an interest in possession (under s.49(1)) is themselves a long-term UK resident at that time.
  • s.48ZA(6): The exclusions at (2) to (4) cease to apply where an individual has been beneficially entitled to an IIP, the entitlement arose from a disposition for consideration on or after 5 December 2005, and the individual was LTR (post-6-April-2025) or UK-domiciled (pre-6-April-2025) when entitled.
  • s.48ZA(7): Source of consideration is immaterial; indirect entitlements via wills or intestacy are covered.
  • s.48ZA(8): Where IHTA 1984 s.74A(1) anti-avoidance conditions are satisfied, the exclusions at (2) to (4) cease to apply from the trigger point.
  • s.48ZA(9): Accumulated income is referenced to the time the underlying property became settled, not to the accumulation date.
  • s.48ZA(10): Subsections (2) to (4) are subject to Schedule A1 (overseas property with value attributable to UK residential property or UK agricultural property).
  • s.48ZA(11): Reversionary interests are excluded from this section's scope; s.6(1) applies to them instead.

The s.48ZA(4) preservation for pre-6-April-2025 deceased settlors

Section 48ZA(4) is the structural preservation gateway for trusts set up under the historic regime. The condition is twofold: the settlor must have died before 6 April 2025, AND the settlor must have been non-UK-domiciled when the property became comprised in the settlement. Where both conditions are satisfied, the trust property remains excluded under the same test that applied pre-reform. The 6 April 2025 cut-off is settlor-side: it is the settlor's date of death (not the trust's settlement date) that determines whether s.48ZA(4) or one of the live-settlor / post-2025-deceased subsections applies.

The preservation is clean and per-addition. Each property addition to the trust is tested independently: if the settlor died pre-6-April-2025 and was non-UK-domiciled at the time of that specific addition, that property is excluded. If a different property was added later when the settlor's domicile had changed (or after the settlor's death, by another transferor), s.48ZA(4) does not apply to that later addition; the test then runs on the relevant section for the contributor of that addition.

Practical implication for trustees of pre-2025 deceased-settlor trusts. The trust's existing book of pre-2025 additions is preserved; no retroactive recategorisation. The trust's tax position at any forthcoming 10-year periodic charge under s.64 is the same as it would have been under the pre-reform rules. New additions to the trust by a different party (a co-settlor, a deceased settlor's successor in trust) are tested under the s.48ZA subsection applicable to that party; the pre-2025 preservation does not automatically extend.

The s.48ZA(2) time-of-addition test for living settlors

For a living settlor, the test runs continuously: property is excluded "at any time when the settlor is not a long-term UK resident". The wording is deliberate. A settlor's LTR status under s.6A can change year by year as the rolling 20-year residence window updates. The s.48ZA(2) test follows the s.6A position tax year by tax year.

The operational consequence is a per-addition status test combined with a continuing-status test. At the moment of addition, the property is excluded if the settlor was not LTR. In each subsequent tax year, the property's excluded status persists if the settlor remained non-LTR. If the settlor becomes LTR in a later tax year (e.g., by returning to UK residence and crossing the 10-of-20 threshold under s.6A), the property added when the settlor was non-LTR does not lose its excluded status: the test at s.48ZA(2) is satisfied for that property "at any time when the settlor is not a long-term UK resident", which captures any earlier tax year in which the settlor was non-LTR. So past excluded-property status is preserved; the LTR conversion only affects future additions.

Worked example: a mixed-status offshore trust under s.48ZA

Take a hypothetical landlord, the Patel-Estate Family Trust, settled in Jersey in 2018 by a Singapore-resident settlor (UK-domicile-of-choice for a six-year period in the late 1990s; now Singapore-resident and Singapore-domiciled-of-choice). The settlor was non-UK-domiciled at the trust's settlement and at each addition through 2024. Settled assets at notional valuation date: £1.4 million of non-UK situs investments plus a non-UK situs commercial property.

Section 48ZA(2) applies: the settlor is alive. The settlor is non-LTR throughout (they have not been UK-resident in any tax year in the last 20). All pre-2025 additions are excluded property under s.48ZA(2) at every time during the settlor's continuing non-LTR period. The trust's existing book is fully excluded; no UK IHT exposure on the offshore assets.

Now suppose the settlor returns to the UK in tax year 2027-28 to manage a family business interest and is UK-resident throughout 2027-28 onwards. Apply the s.6A test for the settlor in 2027-28: their 20-year reference window is 2007-08 to 2026-27. They were UK-resident for 8 of those 20 years (a fabricated but consistent count). 8 is below the 10-of-20 threshold, so the settlor is not LTR in 2027-28. The s.48ZA(2) test is still satisfied; existing trust assets remain excluded.

In 2029-30 the settlor is still UK-resident. The 20-year window is now 2009-10 to 2028-29; the UK-resident year count is 10 (8 historic plus 2 new years of UK residence). The s.6A 10-of-20 threshold is crossed; the settlor becomes LTR from 2029-30.

What happens to the trust? Property added before 2029-30, when the settlor was non-LTR, remains excluded property under s.48ZA(2) at the times when the settlor was non-LTR; that prior excluded status persists. Property added in or after 2029-30, when the settlor is LTR, fails the s.48ZA(2) test and is NOT excluded property. The trust becomes mixed-status: the pre-2029-30 slice is excluded; the LTR-era addition is relevant property under the standard regime.

The trust's 10-year periodic charge calculation under s.64 (assume the trust hits its first relevant ten-year anniversary in 2028-29, when the settlor is still non-LTR) is on the chargeable value of the non-excluded slice. For the 2028-29 anniversary, the chargeable value is nil (all assets excluded under s.48ZA(2) on that date), so no periodic charge. By the second ten-year anniversary in 2038-39 (settlor now LTR for a decade), the periodic-charge tax base is the chargeable value of the post-2029-30 additions plus their accumulated income.

The trustees' obligation is to track per-addition: date of addition, settlor LTR status at that date, situs and value. The lookups feed every subsequent IHT analysis the trust undertakes.

The IIP-beneficiary carve-out at s.48ZA(5) to (7)

Sections 48ZA(5) to (7) prevent the use of a long-term-resident IIP beneficiary inside an offshore trust to defeat the LTR-based exclusion. The architecture treats the IIP-beneficiary route as a structural risk because, under IHTA 1984 s.49(1), an IIP beneficiary is treated as beneficially entitled to the underlying property; without the carve-out, a non-LTR-settled trust with an LTR IIP beneficiary could place the trust property in a position that resembled UK-direct ownership without the corresponding IHT treatment.

Section 48ZA(5) is the live-IIP carve-out. Where a beneficiary with an IIP under s.49(1) is LTR at any given time, the s.48ZA(2) and (3) exclusions do not apply at that time. The trust property is in UK IHT scope while the LTR IIP holder holds the interest. The IIP need not be the only interest in the trust; it is enough that an LTR-IIP beneficiary exists.

Section 48ZA(6) extends the rule to historic IIP positions that arose from a disposition for consideration on or after 5 December 2005. Where an individual had such an IIP and was LTR (post-reform) or UK-domiciled (pre-reform) at that time, the s.48ZA(2) to (4) exclusions cease to apply. Section 48ZA(7) closes a further route: the consideration source does not matter, and indirect entitlements through wills or intestacy count.

The combined effect is that the s.48ZA exclusion is genuinely calibrated for non-LTR-settlor offshore structures and is not available where LTR (or pre-reform UK-domiciled) beneficiaries hold the interest through an IIP path. Sessions advising on offshore-trust IHT planning should treat any historic or current IIP held by an LTR (or pre-reform UK-domiciled) beneficiary as a red-flag risk to the trust's excluded-property status.

Schedule A1 and the agricultural-property extension at s.48ZA(10)

Section 48ZA(10) provides that subsections (2) to (4) are subject to Schedule A1 IHTA 1984. The Schedule A1 look-through (in force from 6 April 2017) treats UK residential property held via offshore corporate or trust structures as direct UK property for IHT purposes, to the extent the offshore structure's value is attributable to UK residential property. The s.48ZA exclusion does not displace Schedule A1; an excluded-property offshore trust holding UK residential property through a Jersey company is excluded at the trust-share level but the underlying UK residential value is in UK IHT scope under Schedule A1.

FA 2025 extended Schedule A1 to cover UK agricultural property. Section 48ZA(10) refers to "overseas property with value attributable to UK residential property or UK agricultural property"; the agricultural extension closes the offshore-company route for UK farmland that had been a residual planning structure. The combined Schedule A1 look-through now covers both UK residential and UK agricultural property held via non-UK structures, and the s.48ZA exclusion does not protect the underlying UK situs value in either case.

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The Schedule 13 paragraph 46 pre-commencement emigrants exemption

Schedule 13 paragraph 46 introduces a narrow exemption from long-term-resident status for emigrants who left the UK before the Budget 2024 announcement and want certainty that the reform does not re-engage them. The three conditions are cumulative:

  1. The individual was not domiciled in the UK on 30 October 2024 (the Budget 2024 announcement date).
  2. The individual has not been UK-resident in any tax year from 2025-26 up to the relevant tax year.
  3. Either the individual was not UK-resident in any of the three tax years preceding 2025-26, or they were UK-resident in fewer than 15 of the 20 tax years preceding 2025-26.

The first two conditions are mechanical; the third is a residence-history threshold ensuring the exemption only applies to genuine pre-reform emigrants. Domicile is determined ignoring the historic deemed-domicile machinery at s.267, s.267ZA, and s.267ZB.

An individual meeting all three conditions is treated as not being long-term UK resident, even where the s.6A test would otherwise place them in LTR status under the standard analysis. For trustees of offshore trusts settled by such an emigrant, paragraph 46 effectively keeps the settlor's non-LTR status alive for s.48ZA(2) purposes during the continued absence. The exemption is asymmetric in scope: it only operates while the conditions remain satisfied; a return to UK residence in any later tax year extinguishes the exemption and the standard s.6A analysis re-engages.

Sections 267ZA and 267ZB scheduled for repeal 6 April 2032

Schedule 13 paragraph 45 (commencement) provides that most Part 1 amendments take effect on 6 April 2025, but defers the repeal of IHTA 1984 sections 267ZA and 267ZB to 6 April 2032. Both sections remain in force for transitional cases until that date. Section 267ZA permits a domicile-based election into UK-domiciled treatment for spouse-exemption purposes where the spousal connection condition is satisfied for a date before 6 April 2025 within the 7-year window. Section 267ZB sets the procedural mechanics for s.267ZA elections.

The seven-year deferred repeal means individuals with legacy spousal connections can make or maintain s.267ZA elections through the 2031-32 tax year; after 6 April 2032 the route closes. From 6 April 2025 onwards, new post-reform spousal elections operate under sections 267ZC to 267ZF (the LTR-based spousal election framework, covered in the dedicated Wave 8 spouse-exemption page), not 267ZA. The two routes coexist for seven years; sessions advising on spousal IHT election should determine which window applies (legacy 267ZA for pre-reform spousal connections; new 267ZC for post-reform LTR connections) and plan accordingly.

The trustee record-keeping obligation

The per-addition architecture of s.48ZA produces a structural record-keeping obligation for trustees of offshore trusts. For each addition of property to the trust, trustees should record:

  • The date of addition.
  • The settlor's long-term-resident status under IHTA 1984 s.6A at that date (with supporting evidence of the 20-year residence-history calculation).
  • For pre-6-April-2025 additions, the settlor's domicile at that date (the s.48ZA(4) preservation depends on it).
  • The situs of the property added (UK or non-UK; for offshore corporate holdings, the underlying UK-residential or UK-agricultural exposure under Schedule A1).
  • The value of the addition at the addition date.

The records support the trust's IHT analysis at any 10-year periodic charge date under s.64, on exit charges under s.65, and at any chargeable event. HMRC's Inheritance Tax Manual trust chapters are being rewritten for FA 2025 and the formal record-keeping standard has not yet been published. Until the IHTM update lands, trustees should default to comprehensive per-addition documentation; the absence of records may force a default-to-relevant-property treatment on the addition in an HMRC enquiry.

What this page does not cover

This page is the trust-side companion to the s.6A LTR test pillar. It does not cover: the s.6A test itself in mechanical detail (the s.6A pillar covers); the s.18 spouse exemption application of the LTR test or the s.267ZC SPOUSAL election (the spouse-exemption Wave 8 page covers); the SRT day-count tests (the SRT page); the FIG regime for foreign income and gains, the Temporary Repatriation Facility, the CGT rebasing election, or the returning-to-UK s.10A interaction (each has its own dedicated Wave 8 page); Schedule A1 mechanics in detail (the IHT non-resident headline page covers); or the trust pillar covering vehicle choice (IPDI, discretionary, bare, FIC), which is at the four-vehicle decision pillar.

For the policy-side framing of the IHT non-resident reform, see Non-Resident IHT on UK Property: April 2025 LTR Regime. For the descriptive IHT pillar covering reliefs and the headline charge, see Inheritance Tax on Rental Property Portfolios: UK Guide 2026.

Statutory and HMRC sources cited above: Inheritance Tax Act 1984 section 48ZA; Inheritance Tax Act 1984 section 48; Inheritance Tax Act 1984 section 6A; Inheritance Tax Act 1984 Schedule A1; Finance Act 2025 section 45; Finance Act 2025 Schedule 13; HMRC Inheritance Tax Manual (trust chapters in rewrite for FA 2025); gov.uk: Changes to the taxation of non-UK domiciled individuals.