Insight
June 2016
A matter of trust – dealing with the
10-year anniversary charge
Trusts are a widely used financial planning tool that can help you
pass wealth down the generations. For many individuals and
families trusts offer peace of mind, but you cannot put assets into
a trust and just forget about them.
The trustees, which usually include the person or persons who have
set up the trust, have obligations. One of these is managing the trust
fund assets. Another is complying with the trust’s tax obligations
including tax reporting, tax filings and paying any taxes that are owed,
including, in many cases, an inheritance tax (IHT) “periodic” charge
every 10 years.1
A large number of trusts are approaching this all-important 10-year
tax deadline, causing some confusion among trustees who may have
forgotten about the need to pay the tax charge.
Why has this become an issue?
A trust is a way of holding assets for your own or someone else’s
benefit. Since 2006 most assets held in trusts, including money, shares,
houses and land, have been deemed to be “relevant property”. The IHT
regime for relevant property imposes a charge when capital leaves the
trust and on each tenth anniversary of the date your trust was set up.1
As such this may be the first year that some trustees are required to pay the 10-year tax charge on trusts.
Rory Burrough, a financial planner in Brewin Dolphin’s Birmingham office, says: “The periodic charge is usually more of
an administrative rather than financial burden since it will often be small in comparison to the tax advantages of the trust
arrangement in question and in many cases, not applicable at all.
“However, it may be that some education, reassurance and support will be needed, particularly by lay-trustees who have
either forgotten their obligations over the 10 years since the trust was established, are worried the tax liability will be
dramatic, or perhaps just unsure of the calculations, time frames and procedures involved for payment.”
Which trusts are affected?
Many trusts are liable for the 10-year charge, the only exceptions being:
• Bare trusts, which are the simplest type of trusts to establish but give you the least control over how the money is used2
• Interest in possession trusts, where assets were put in place before 22 March 2006
• Transitional serial interest trusts that came into effect between 22 March 2006 and 5 October 2008
• Interest in possession trusts created under the terms of a will or the rules of intestacy
• Trusts set up for a disabled person
• Trusts for a bereaved minor
• 18 to 25 trusts, where a property is held on trust for the benefit of an individual who has not yet reached the age of
25 and at least one of their parents has died.1
Life assurance policies put into a trust to reduce an IHT bill on death are liable to the 10-year charge. However, unless the
life assured is in serious ill health, these policies usually have a low market value. As a result, because of the way the charge
is calculated, there could be no tax to pay.
Who is responsible for paying the charge?
The trustees who legally own and control the assets in a trust are responsible for paying the tax charge. It is quite common
for one of the trustees to be a family member while another is a company such as a bank or firm of solicitors. They must
agree between them how the trust charges are paid.
How much do you need to pay?
The calculation of the tax is complicated and best left to a professional. It is based on the value of the trust assets at the
10-year anniversary. It takes into account the values of chargeable transfers made by the ‘settlor’- the person who puts
assets into the trust - in the seven years leading up to the trust being set up, and also distributions made by the trust in the
10 years before the charge as well as the IHT threshold, known as the ‘nil rate band’, which is £325,000 this tax year, and
rates of tax payable vary, depending on the calculation.1
If you want HM Revenue & Customs (HMRC) to work out the anniversary charge for you, fill in form IHT 100 leaving sections
G and H blank. Make sure you return the form to HMRC in good time for the calculation to be worked out.
Although the law governing trusts is different in England and Wales, Scotland and Northern Ireland, the way they are taxed
is the same throughout the UK.
What action do I need to take and when?
You must return form IHT 100 to HMRC and pay the IHT due no later than sixth months after a trust’s 10-year anniversary.
If you miss this six-month deadline HMRC will charge interest on the amount outstanding and may impose a penalty.1
How can we help?
Brewin Dolphin’s financial planners can introduce you to tax specialists where appropriate.
If you would like to talk about trusts and IHT please call 020 3201 3900 or contact your local Brewin Dolphin and we will be
delighted to help you.
1. HM Revenue & Customs Trusts and Inheritance Tax, 6 April 2016
2. The Money Advice Service Using a trust to cut your Inheritance Tax
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct
at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual
circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
No trust strategy is suitable in all cases and if you have any doubts as to a trust’s suitability then you should contact us.
The figures in this article are based on tax rates and thresholds prevailing as at 6 April, 2016 and will be subject to future change.