Get the FOTRA out of the UK! – You will want to read this!
7th November 2025
Posted in Articles by Laura Hutchinson
Hidden within the Finance Act 2025 was a very helpful change to the tax treatment of UK government securities for inheritance tax (IHT).
These investments, referred to as FOTRA (Free of Tax to Residents Abroad) could offer a significant IHT advantage to anyone willing to become non-UK resident, even for just a year. FOTRAs include all government securities, known as gilts, issued after 2013 (excluding 3 ½% War Stock).
Unlike other tax planning involving non-UK residence, which often involves becoming non-resident for six years (for income tax or capital gains tax) or 10 years (to cease to be a long-term resident for IHT purposes) this planning can be achieved with only one year of non-UK residence.
Such investments will be treated as excluded property, meaning that they fall outside of the UK IHT entirely, provided that the owner of the shares is not resident in the UK. Previously this exemption only applied to people who were not domiciled in the UK under general law. Now this extends to any individual who is simply non-UK resident, even if they remain a long-term resident (i.e. they have been resident for at least 10 years out of the last 20). Not only does it apply to Treasury stock held directly by an individual but also if it is held within an old-style life interest trust where the trust assets form part of the life tenant’s estate.
This clearly offers a tax planning opportunity, as shown in the example below.
A simple example
Mrs Starmer is 76 and has lived in the UK all her life. She is looking to downsize from her large London property and acquire a smaller abode. She missed out on a gap year in her younger years and has always wanted to see the golden sands and the crystal-clear waters of the Caribbean. She decides to book herself on an around the world cruise starting on 5 April 2026. Just before she leaves, she sells her main residence for £5 million. She has been advised to invest these funds in advance of buying a new property on her return and has opted to invest in UK Treasury stock.
While away, she embraces the simpler life and decides she only needs to keep £500,000 of the investments to acquire a new property on her return. Feeling generous, she decides to give away £4.5m of treasury stock to her daughter. As Mrs Starmer is non-UK resident (and is in fact a non-resident nomad) when she makes the gift, the gift is of excluded property and hence does not fall within the usual seven-year gifting regime. Instead, it is exempt as soon as it is made.
Mrs Starmer has acquired a tan but reduced her tax (by £1.8 million)! Also, she has the luxury of being able to die within seven years without bringing the gift into charge. Bonus!
Forbes Dawson’s view
This will be an attractive proposition for many internationally mobile individuals, regardless of age but the main benefit arises to those who potentially may not survive the required seven-year survivorship period after making a gift. This planning may become even more relevant if this period is extended in this month’s Budget but “Shhuuush” and keep this to yourself because we don’t want Rachel getting wind of this and making changes…
Care should be taken here though. In a now removed HMRC manual (IHT4292), they say they will investigate any last-minute purchase of gilts for these purposes. Although there is no required holding period in legislation, it is probably not wise to acquire a gilt, immediately give it away and then for the donee to immediately sell the investment. However, on the face of it this all looks very interesting indeed. Watch this space for the launch of Forbes Dawson FOTRA cruises coming to a travel agent near you! Clearly we are joking, but FOTRAs may be well worth including in your IHT planning armoury.
