IHT Related Settlements: s62 IHTA 1984, the Rysaffe Principle, and FA 2014
Settlements made by the same settlor on the same day are related and share a single nil-rate band for the 10-year charge. Different-day settlements are not related — the Rysaffe principle still applies in 2026 for trust creation.
Rysaffe Planning: Before and After FA 2014
Before FA 2014 — classic Rysaffe
A settlor creates 7 discretionary trusts on 7 consecutive days, settling £50,000 into each. None are 'related' because each has a different creation date. At each 10-year anniversary, the rate for that trust is calculated as if its value is the only settled property — not aggregated with the others. Each trust has its own full nil-rate band. 10-year charge = typically nil or minimal.
FA 2014 s62A — same-day additions restricted
Finance Act 2014 introduced s62A IHTA 1984: where the same settlor adds property to two or more settlements on the same day after 10 June 2014, the added amounts are aggregated for rate calculation purposes. This prevents topping up multiple existing trusts on the same day to each use its own NRB. The measure targets same-day additions, not the original different-day creation.
Post-FA 2014 — different-day trusts still not related
Trusts created on different days by the same settlor remain outside s62 IHTA 1984 and are not related settlements. The Rysaffe principle survives for the creation stage. If additions to each trust are also made on different days, the FA 2014 same-day addition rules do not apply. Multiple different-day trusts each retain their own NRB for 10-year charge calculations.
Frequently Asked Questions
What are 'related settlements' for IHT purposes and why do they matter?
Under s62 IHTA 1984, two or more settlements are related if they were made by the same settlor on the same day — with the exception of settlements made on death (will trusts are excluded from the related settlement rules). Related settlements are significant because of the way the 10-year periodic charge is calculated for discretionary trusts under s64 IHTA 1984. When computing the effective rate of tax on a trust's assets at each 10-year anniversary, the calculation includes the 'value of related settlements' — the value of property in all related settlements at the date of the settlement being charged. This means that two related trusts created on the same day effectively share a single nil-rate band. If the settlor puts £325,000 into Trust A and £325,000 into Trust B on the same day, neither trust has a free NRB — each has a 'related settlement value' of £325,000 that fills the NRB in the rate calculation for the other.
What is the Rysaffe principle and does it still work?
The Rysaffe principle takes its name from Rysaffe Nominee Co Ltd v IRC [2003] CA, which confirmed that settlements created by the same settlor on different days are not 'related' within s62 IHTA 1984 — because the definition requires both the same settlor AND the same day. The court rejected HMRC's argument that a series of small settlements created by the same settlor on successive days should be aggregated. Each settlement, having its own creation date, has its own NRB for the 10-year charge. The practical implication is that a settlor who creates multiple discretionary trusts on different days can ensure each has its own NRB, dramatically reducing the 10-year charge exposure on each fund. The principle still works in 2026 for the creation of trusts — Finance Act 2014 restricted same-day additions (s62A IHTA 1984) but did not affect the original Rysaffe different-day principle.
What did Finance Act 2014 do to multiple trust IHT planning?
Finance Act 2014 introduced s62A IHTA 1984 to tackle a specific use of multiple trusts: the same-day addition. A same-day addition is where a settlor adds assets to two or more of their existing trusts on the same day. Before 2014, a settlor could create 10 trusts (each on a different day) and then, after some years had passed, top up all 10 trusts in a single day. Each trust's NRB calculation would ignore the additions to the other trusts. From 10 June 2014, where the same settlor adds property to two or more settlements on the same day (other than on death), the added amounts are treated as related for rate calculation purposes. However, the fundamental Rysaffe principle — that different-day trust creation means each trust is not a related settlement under s62 — remains intact. The restriction is on same-day additions, not on the structure itself.
How does the 'related settlement value' affect the IHT 10-year charge calculation?
The 10-year periodic charge under s64 IHTA 1984 is calculated as 30% of the 'effective rate', which is itself derived from an assumed chargeable transfer including: (1) the value of the property in the settlement being charged; (2) the 'value of related settlements' (s62 IHTA 1984 — property in related settlements at the date of the settlement's creation); (3) the value of any distributions made in the preceding 10 years. The effective rate is then applied to the actual trust value at 30%. By including related settlement values in the rate calculation, HMRC ensures that the NRB is not available to each related trust independently. If two trusts were created on the same day each with £325,000, the related settlement value used in each 10-year calculation is £325,000 — meaning neither trust benefits from the nil-rate band threshold, and the full value of each is potentially subject to the periodic charge at the relevant rate.
Do the related settlement rules apply to will trusts?
No. Section 62 IHTA 1984 expressly excludes settlements made on death from the related settlement definition. Two discretionary will trusts created under the same will — for example, a nil-rate band discretionary trust and a residuary discretionary trust — are not related settlements even though they are created on the same day (the date of death). This is a significant planning advantage: testators can create multiple discretionary trusts in their will without triggering the s62 related settlement rules. Each will trust has its own NRB for 10-year charge purposes. The exclusion of death-created settlements reflects the policy that testamentary planning should not be unnecessarily restricted by the same-day rule designed to prevent inter vivos avoidance schemes.
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