Trusts and ten-year charges

What is a ten-year charge?

Ten year charges are Inheritance Tax charges that apply to most discretionary trusts and certain life interest trusts. They occur every tenth anniversary of the date the trust was created. The charge is based on the net value of any relevant property in the trust on the day before the tenth anniversary. A tax return (IHT100) has to be submitted to HMRC to account for the tax due.

How much tax is payable?

The calculation of how much tax is due is quite complicated, but the rate of tax charged is up to a maximum of 6% of the value of the trust.

Is tax relief available?

Each trust has its own nil-rate band, which is an amount which is charged to tax at 0% and is therefore tax free. However, the value of the nil-rate band is determined by a number of factors. It may be possible to claim business property relief or agricultural property relief depending on the asset(s) held within the trust. Liabilities owing are also considered when calculating the tax due.

How is the tax calculated?

The ten-year anniversary charge is complicated as it depends on a number of factors which are determined by the events occurring during the trust’s life; and events during the settlor’s (the person creating the trust) life. It is important to maintain records showing the value and asset(s) put into the trust at inception, together with transactions that have taken place during the trust’s lifetime.

Depending on how the trust is set up at inception depends on how it will be treated by HMRC for tax purposes. It is imperative you seek professional advice from someone who specialises in this area.

Contact us

For an informal chat about how we can help with Ten Year Charge Tax Returns our specialist Wills Estate Planning and Trusts Team provide expert advice for individuals, estates and trusts.