Jersey based charitable trust exempt from UK Inheritance Tax

UK Supreme Court has ruled this week that a legacy to a Jersey charitable trust is exempt from UK Inheritance Tax (IHT).

The UK Supreme Court has ruled this week that a legacy to a Jersey charitable trust is exempt from UK Inheritance Tax (IHT).

The deceased was resident in Jersey and left her £1.8 million estate to a charitable trust based in Jersey under the terms of her Will. HM Revenue and Customs (HMRC) argued that a Jersey-based charitable trust did not qualify for exemption from UK IHT, meaning that almost £600,000 of tax was due to be paid by the estate.

The executors appealed to the Supreme Court. The court considered two key issues:-

  1. Is Jersey a ’third country’ for the purposes of the European Union principle of free movement of capital; and
  2. If Jersey is a ‘third country’, whether HMRC’s interpretation of the charitable exemption from IHT was correct.

The court ruled that Jersey was a ‘third country’ and therefore the principle of free movement of capital did apply. The Supreme Court then found that HMRC’s application of the IHT charitable exemption was not justified in the circumstances and that the gift was therefore exempt from IHT.

The estate will now pass to the Jersey charitable trust free of IHT. Lorraine Wilson, Solicitor at Weightmans, comments that this case is a reminder of the complexity of UK IHT rules and the importance of seeking professional advice, particularly in relation to estates with a cross-border element.

Source: Routier & another v Commissioners for HMRC [2019] UKSC 43

If you have any questions or would like to discuss any aspect of this article, please contact Lorraine Wilson at lorraine.wilson@weightmans.com or 0404 9312.

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