IHT 10-Year Periodic Charge UK 2026: s64 IHTA Calculation, Effective Rate, Exit Charges s65, and When Trusts Pay Nothing
A relevant property trust pays up to 6% of the fund above the NRB every 10 years. But if the fund stays below the available NRB — no charge. Ever. Understanding the calculation is the key to making a discretionary trust IHT-efficient.
Trust Fund Below the NRB at the 10th Anniversary = Zero Charge and Zero Exit Charges
If the relevant property in a discretionary trust is worth less than the available NRB (£325k minus the settlor's prior CLTs in the previous 7yr) at the 10th anniversary: the 10-yr periodic charge is NIL. Exit charges in the following 10yr are also nil. A trust funded with less than £325k (settlor no prior CLTs) can hold assets, grow, distribute — with zero IHT charges for as long as the fund stays below the NRB at each 10-yr anniversary.
| Aspect | Applies / When Charge Arises | Rate / Calculation | Planning Guidance |
|---|---|---|---|
| Which trusts pay the 10-year periodic charge? | RELEVANT PROPERTY TRUSTS: the 10-yr periodic charge (s64 IHTA 1984) applies to all 'relevant property' trusts. Relevant property = settled property in which there is no qualifying interest in possession (s58(1) IHTA). This includes: (1) discretionary trusts (trustees have discretion over income and capital distributions — no beneficiary has a fixed interest in income); (2) NEW post-FA 2006 lifetime IIP trusts (post-22 March 2006 settlements with an IIP — the IIP does not qualify under s49 — treated as relevant property); (3) accumulation and maintenance trusts (created before 6 April 2008 that did not convert to qualifying IIP trusts or 18-25 trusts); (4) most post-2006 family trusts. DOES NOT APPLY TO: IPDI trusts (s49A IHTA — created by will; not relevant property); disabled person's trusts (s89B — not relevant property); bare trusts (transparent for IHT — not settled property); pre-22 March 2006 qualifying IIP trusts (not relevant property). | The 10-yr charge applies on the 10th anniversary of the SETTLOR'S CREATION OF THE TRUST (or the 10th anniversary of when the property first became relevant property — if later). Trustees must self-assess and pay the 10-yr charge — HMRC does not issue an assessment. The trustees file HMRC Form IHT100 within 6 months of the 10th anniversary. If the charge is not paid on time: interest accrues on the unpaid amount (from the date the return was due — at HMRC's current late payment rate). Failure to file: penalties apply. The 10-yr anniversary date is fixed by the date of the trust deed (or the date property was added to the trust). Even if the trust fund is small: trustees must assess whether a charge is due (and keep records to show the calculation). | Trusts funded with BPR assets (e.g., AIM shares, unquoted business interests) may qualify for BPR on the 10-yr charge (100% BPR reduces the relevant property subject to the 10-yr charge to nil for those assets — subject to the 2yr qualifying ownership and wholly/mainly trading tests). This makes discretionary trusts holding qualifying BPR assets very efficient: entry CLT potentially reduced to nil (BPR); 10-yr charge nil (BPR); exit charge nil (BPR). After the Finance Act 2026 £1m combined APR/BPR cap: the BPR relief in the trust is also capped. Careful valuation and planning is needed for trusts approaching the £1m combined threshold. |
| How the 10-yr charge rate is calculated — the notional transfer | STEP-BY-STEP CALCULATION: (1) VALUE THE RELEVANT PROPERTY at the 10th anniversary date (market value — RICS valuation for property; quoted price for listed securities; HMRC business valuations for unquoted shares). (2) CALCULATE THE NOTIONAL CHARGEABLE TRANSFER: value of relevant property in the trust PLUS the value of any related settlements (trusts made by the same settlor on the same day — FA 2006 clawback rules) PLUS the value of any property added since creation PLUS the settlor's cumulative chargeable transfers (CLTs) in the 7yr before the trust was created. (3) APPLY THE LIFETIME RATE: £0-£325k (NRB) = 0%; above £325k = 20%. The 'hypothetical IHT' = this calculation applied to the notional chargeable transfer. (4) EFFECTIVE RATE = hypothetical IHT / total notional chargeable transfer (express as a percentage). (5) ACTUAL 10-YR CHARGE = 30% × effective rate × value of relevant property in the trust. The 30% reflects the fact that the charge is meant to approximate the IHT that would have been due over 10yr (30% of the 40% = 12% over 10yr, but the calculation is per the formula). | EXAMPLE — TRUST WITH NO PRIOR CLTs: trust fund at 10th anniversary = £800,000. Settlor had no prior CLTs. Notional chargeable transfer = £800,000. Hypothetical IHT: first £325k = 0%; remaining £475k at 20% = £95,000. Effective rate = £95,000 / £800,000 = 11.875%. Actual 10-yr charge = 30% × 11.875% = 3.5625% of £800,000 = £28,500. Rate is well below 6% — the NRB shielded £325k. EXAMPLE — WITH PRIOR CLTs: same trust, but settlor made a £325k CLT (used the full NRB) in the 7yr before creating the trust. Notional chargeable transfer = £800,000 + £325k = £1,125,000. Hypothetical IHT: £325k at 0% (NRB consumed by prior CLT = 0); £800k at 20% = £160,000. Effective rate = £160,000 / £1,125,000 = 14.22%. Actual 10-yr charge = 30% × 14.22% = 4.27% of £800k = £34,133. With prior CLTs using the full NRB: the 10-yr charge is higher. | To reduce the 10-yr charge: (1) KEEP THE FUND BELOW THE NRB: if the trust fund value at the 10th anniversary is below the available NRB (after settlor prior CLTs): the 10-yr charge is NIL. This requires the trust to have been funded with less than £325k (or less, if the settlor had prior CLTs). (2) DISTRIBUTE BEFORE THE 10TH ANNIVERSARY: exit charges apply at a lower rate within the 10yr period (proportional to time elapsed). Distributing most of the fund before the 10th anniversary avoids the periodic charge entirely for those assets (paying an exit charge instead — which may be lower). (3) HOLD BPR ASSETS: qualifying BPR assets reduce the relevant property subject to the 10-yr charge — potentially to nil if fully BPR-qualifying. (4) MULTIPLE TRUSTS (pre-2014): prior to Finance Act 2014, settlors could create multiple trusts each just below the NRB to multiply the NRB protection. FA 2014 closed this by aggregating 'related settlements' (same-day additions) for the notional transfer calculation. New trusts after FA 2014 should not rely on this structure. |
| Exit charges (s65 IHTA 1984) — when property leaves the trust | An exit charge applies under s65 IHTA 1984 when property ceases to be relevant property — i.e., when it is distributed out of the trust (to a beneficiary; appointed out; the trust terminates). EXIT CHARGE RATE: (proportion of 10yr elapsed since last 10-yr anniversary / total 10yr period) × the hypothetical effective rate at the last 10-yr anniversary (or at creation if within the first 10yr). FORMULA: exit charge rate = (years since last 10-yr anniversary / 40) × effective rate at last 10-yr anniversary. Example: trust has a 10-yr charge effective rate of 4%. Five years after the last 10-yr anniversary, the trustees appoint out £100,000 to a beneficiary. Exit charge rate = (5/40) × 4% = 0.5% of £100,000 = £500 exit charge. FIRST 10 YEARS CALCULATION: if the distribution is within the first 10yr (before the first 10-yr anniversary): the calculation is different — based on the hypothetical charge at the time of the original creation (using the initial value and settlor prior CLTs at the time of creation), not the current value. Trustees should calculate this separately. | IMPORTANT: where the 10-yr effective rate is ZERO (because the trust fund was below the NRB): exit charges within the following 10yr are also ZERO. This is the BIGGEST benefit of keeping a trust fund below the NRB: no 10-yr charge AND no exit charges for the following decade. FILING REQUIREMENT: trustees must file HMRC Form IHT100 for exit charges above the minor threshold (currently where the relevant property ceasing to be relevant property exceeds £1,000). For exit charges below this threshold: no HMRC filing required but trustees should keep records. | Exit charge planning: (1) ACCELERATE DISTRIBUTIONS: if the trustees want to distribute property, doing so BEFORE the 10th anniversary (when exit charges are based on time elapsed, not the full effective rate) may be more efficient than waiting until after the 10th anniversary (when exit charges are 30% of the effective rate — effectively pro-rating a full 10-yr charge). However: the timing depends on the specific effective rate and the assets involved. Trustees should model the exit charge at various points. (2) APPOINT OUT BPR ASSETS FIRST: if the trust holds a mix of BPR and non-BPR assets: consider appointing out BPR-qualifying assets (exit charge nil with BPR) before non-BPR assets. (3) WINDING UP THE TRUST: when the trust is wound up (all assets distributed): exit charges apply to all the assets on wind-up. Keep the trust fund below the NRB to ensure the wind-up exit charges are nil (zero effective rate at the 10-yr anniversary). (4) For trusts approaching the 10th anniversary with a fund above the NRB: trustees should seek specialist advice on whether distribution before the anniversary (exit charge) or payment of the 10-yr charge is more tax-efficient. |
| When does a discretionary trust pay NO 10-year charge? | A relevant property trust pays NO 10-yr charge if the 10th anniversary occurs when the TRUST FUND VALUE (relevant property in the trust) does not exceed the AVAILABLE NRB after deducting the settlor's prior CLTs in the 7yr before the trust was created. Three scenarios where the charge is nil: (1) TRUST FUND BELOW NRB WITH NO PRIOR CLTs: if the settlor had no prior chargeable transfers and the trust fund is below £325k at the 10th anniversary: the notional chargeable transfer is below the NRB; the hypothetical IHT = 0; the 10-yr charge = 0. (2) TRUST FUND BELOW REMAINING NRB: settlor used part of the NRB in prior CLTs (e.g., £200k prior CLTs); NRB remaining = £125k; if trust fund at 10th anniversary is £100k: notional transfer = £100k + £200k = £300k — below the NRB; 10-yr charge = 0. (3) ALL RELEVANT PROPERTY IS BPR/APR QUALIFYING: if all trust assets qualify for 100% BPR or APR: the relevant property subject to the 10-yr charge is reduced to nil; the 10-yr charge = 0 (or reduced proportionally for 50% reliefs). | Practical planning insight: a trust fund of less than £325k (where the settlor had made no prior CLTs) can run indefinitely — distributing to beneficiaries; accumulating income; investing — with ZERO 10-yr charges and ZERO exit charges, as long as the fund stays below the NRB at each 10-yr anniversary. This is why many estate planners use smaller discretionary trusts for testamentary planning (NRB trusts via wills, or lifetime trusts funded with just under £325k) — the IHT charges are nil, but the flexibility of discretionary trusts is retained. For trusts under the NRB: still file IHT100 to notify HMRC (even if the charge is nil) — keeping records is essential for trustees. | The pilot trust structure (pre-2014): before Finance Act 2014, creating multiple small trusts (each just below the NRB) allowed the settlor to multiply the NRB across trusts. HMRC attacked this via the 'same-day addition' rules — if multiple trusts were created on the SAME DAY with money from the same settlor: they are aggregated for the notional transfer calculation (all trusts treated as one for the NRB comparison). From December 2014 (Finance Act 2014): related settlements (same-day additions) are aggregated. POST-2014 approach: a SINGLE trust funded with less than £325k can still benefit from nil charges. Funding multiple trusts on different days avoids the same-day aggregation — but HMRC may challenge trusts with assets added in rapid succession. Seek specialist advice on any multi-trust structure. |
| The HMRC Form IHT100 — filing and payment obligations | TRUSTEES' DUTY: trustees of a relevant property trust must submit HMRC Form IHT100 within 6 MONTHS of each 10th anniversary date. The IHT100 must show: the notional chargeable transfer calculation; the effective rate; the 10-yr charge payable. THE CHARGE IS DUE for payment at the SAME TIME as the return (6 months from the 10-yr anniversary). Late payment interest: HMRC charges interest on any unpaid 10-yr charge from the date it was due (the 6-month anniversary date). Late filing penalties: apply if the IHT100 is filed late, even if the charge is nil. HMRC may waive penalties in limited circumstances — but routine late filing will result in penalty assessments. VALUATION: the relevant property must be valued at the 10th anniversary date. For UK land: RICS qualified surveyor valuation. For unlisted company shares: either HMRC Shares Valuation team opinion or an independent valuator. For listed shares: published mid-market price on the anniversary date. KEEP RECORDS: trustees should keep full records of: the trust deed; all payments into and out of the trust; values at each 10-yr anniversary; IHT100 returns filed. | MINOR THRESHOLD FOR EXIT CHARGES: where the value of the property leaving the trust (in any one quarter) does not exceed £1,000: no IHT100 is required for that exit. For 10-yr anniversaries: IHT100 required if the charge is non-nil OR if the trust has relevant property above £1,000 at the anniversary (to confirm nil charge). Trustees should always file even if the charge is nil — to start the clock running on HMRC's enquiry time limits (4yr for normal enquiry; 20yr for careless/deliberate understatement). | Trustees who inherit an old discretionary trust without records face difficulty in calculating the 10-yr charge — the settlor's prior CLTs and the trust's creation value are needed. If records are not available: HMRC allows reasonable estimates (with a full explanation). Reconstruction of the trust history (from legal files, bank records, HMRC correspondence) is often necessary. If the settlor is deceased: the executors may have relevant IHT400 records. Trustees should engage a specialist trust tax adviser as the first 10-yr anniversary approaches — the calculation is complex and errors can lead to underpayment (with interest) or overpayment. A nil charge at the 10th anniversary (trust fund below NRB) is the ideal outcome: file IHT100 to confirm nil; close off the enquiry window. |
IHT 10-year periodic charge UK 2026. s64 IHTA 1984: 'where relevant property comprised in a settlement which was made on or after 27 March 1974 has been comprised in the settlement throughout the period of ten years ending with the day before a ten-year anniversary, there shall be a charge to tax at the rate applicable under s66 IHTA on the value of the property at that time.' s66 IHTA: the rate applicable is 30% of the lifetime rate (the hypothetical rate on a notional chargeable transfer). Lifetime rate: 0% on first £325k (NRB); 20% on excess. Therefore maximum 10-yr rate = 30% × 20% = 6% of relevant property above NRB. s65 IHTA 1984: exit charge — applies when property ceases to be relevant property; rate = (months elapsed since last 10-yr anniversary or since creation / 40) × rate that would have applied at the last 10-yr anniversary (or at creation if within first 10yr). Note: s65 uses months (1/40th per quarter = 40 quarters over 10yr) — each quarter year (3 months) of the 10-yr period represents 1/40th of the effective rate. Relevant property (s58(1) IHTA 1984): property in a settlement that is not an interest in possession (or is an interest in possession that does not qualify under s49 IHTA — i.e., not an IPDI, disabled person's interest, or TSI). Relevant property includes: (a) discretionary trusts (no interest in possession at all); (b) post-FA 2006 lifetime IIP trusts (IIP exists but does not qualify as qualifying IIP for s49). Related settlements: Finance Act 2006 and Finance Act 2014 — changes to the aggregation of related settlements for the notional transfer calculation. FA 2014 'same-day addition' rule: settlements made by the same settlor on the same day that have property added on the same day are 'related settlements' — their values are aggregated for the notional chargeable transfer. Before FA 2014: the 'related settlement' concept was narrower; the post-2014 change targets pilot trust schemes. Notional chargeable transfer (s66(4) IHTA): the notional chargeable transfer is: the value of the relevant property in the settlement at the 10-yr anniversary; PLUS the value of any property in related settlements at the 10-yr anniversary; PLUS the settlor's cumulative chargeable transfers in the 7yr before the settlement was made (initial CLT position of the settlor). The initial value added to the settlement at creation also forms part of the calculation in some circumstances — specialist advice is needed for complex multi-addition trusts. BPR and APR on 10-yr charges: s104 IHTA (BPR) and s116 IHTA (APR) — reliefs available on the relevant property subject to the 10-yr charge where the trust holds qualifying assets. 100% BPR: reduces the value of qualifying assets to nil for the 10-yr charge. 50% BPR: reduces the value of qualifying assets by 50%. After Finance Act 2026: the £1m combined APR/BPR cap applies — the first £1m of qualifying property in the trust is fully relieved; excess: 50% relief. Trustees must assess BPR/APR qualifying status at each 10-yr anniversary. HMRC IHT100 Form: Inheritance Tax return for chargeable events — 10-yr anniversaries and exit charges. Trustees must file IHT100 within 6 months of the 10-yr anniversary date. IHT100 technical notes: available on HMRC website. Late filing: automatic penalties under FA 2009 Sch 55 — initial £100 penalty for filing up to 3 months late; daily penalties thereafter; tax-based penalties for over 12 months late. Interest on unpaid charge: from the due date (6 months from anniversary) at the current HMRC late payment interest rate. Enquiry window: 4yr from filing for normal enquiry (ss34-40 TMA 1970); 20yr for careless/deliberate understatement.
Frequently Asked Questions
What is the 10-year periodic charge for inheritance tax on trusts?
The 10-year periodic charge (s64 IHTA 1984) is an inheritance tax charge on relevant property trusts (discretionary trusts; post-FA 2006 lifetime IIP trusts; most modern family trusts). The charge applies on EACH 10th anniversary of the trust's creation. RATE: the maximum charge is 6% of the trust's relevant property value above the available NRB. The precise rate is calculated via a notional transfer: value the relevant property; add settlor's prior CLTs in the 7yr before creation; apply the lifetime IHT rate (0% on first £325k; 20% on excess); calculate the effective rate; apply 30% of that effective rate to the trust fund value. If the trust fund is below the available NRB: the 10-yr charge is NIL. Trustees must file HMRC Form IHT100 within 6 months of the 10th anniversary and pay any charge due at the same time.
How is the 10-year trust charge calculated with the nil-rate band?
The 10-yr charge calculation uses a NOTIONAL CHARGEABLE TRANSFER at the 10th anniversary date. Step 1: value the relevant property in the trust. Step 2: add the settlor's other CLTs made in the 7yr BEFORE the trust was created (these reduce the NRB available). Step 3: apply the lifetime IHT rate: 0% on the first £325k (NRB minus prior CLTs); 20% on the excess. Step 4: calculate the effective rate = hypothetical IHT / total notional transfer. Step 5: multiply 30% × effective rate × trust fund value = actual 10-yr charge. Example: trust fund £500k; settlor had no prior CLTs. Notional transfer = £500k. Hypothetical IHT: £325k at 0%; £175k at 20% = £35,000. Effective rate = £35,000 / £500,000 = 7%. 10-yr charge = 30% × 7% × £500,000 = £10,500 (2.1% of the trust fund — well below 6%). If the trust fund were below £325k: charge = £0.
What is an exit charge from a discretionary trust?
An exit charge (s65 IHTA 1984) arises when property ceases to be relevant property — most commonly when the trustees distribute property to a beneficiary. RATE: the exit charge is a proportion of the hypothetical 10-yr charge rate, based on how many years have elapsed since the last 10-yr anniversary (or since creation if within the first 10yr). Formula: exit charge rate = (years elapsed / 40) × effective rate at last 10-yr anniversary. Example: effective rate at last 10-yr anniversary was 4%; the trustees distribute assets 5yr after that anniversary: exit charge rate = (5/40) × 4% = 0.5% of the distributed value. If the effective rate at the last 10-yr anniversary was zero (trust fund was below NRB): exit charges in the following 10yr are also zero. Trustees must file IHT100 for exit charges where the distributed value exceeds £1,000.
Can a discretionary trust pay no 10-year IHT charge?
Yes — if the trust fund value at the 10th anniversary is BELOW the available NRB (after deducting the settlor's prior CLTs in the 7yr before the trust was created): the 10-yr charge is NIL. A trust funded with less than £325k where the settlor had no prior CLTs will pay NO 10-yr charge and NO exit charges for the following 10yr (as long as the fund remains below £325k). This is the primary reason for using 'NRB trusts' — trusts funded with assets equal to the NRB: the periodic charges are nil; the flexibility of a discretionary trust is retained; the trust fund is outside the estate. BPR assets in trust: if all trust assets qualify for 100% BPR: the effective relevant property is nil; the 10-yr charge is nil. This makes discretionary trusts holding AIM shares or qualifying business interests very IHT-efficient.
How do prior chargeable transfers affect the 10-year trust charge?
The settlor's prior chargeable transfers (CLTs) made in the 7yr BEFORE the trust was created reduce the NRB available for the notional chargeable transfer calculation. If the settlor used their full NRB in prior CLTs: the ENTIRE trust fund value is subject to the hypothetical 20% rate (no NRB available for the trust). If prior CLTs = £325k: a trust fund of £100k pays a 10-yr charge of 30% × 20% × £100k = £6,000 (6% — the maximum — on the entire fund). If prior CLTs = £0: the same £100k trust fund pays NO 10-yr charge (entirely within the NRB). This is why the timing of trust creation relative to prior CLTs matters: create the trust BEFORE making other CLTs (if possible) to protect the NRB for the trust; or wait until 7yr after prior CLTs so they fall out of the 7yr window. The 7yr lookback for settlor prior transfers mirrors the 7yr PET rule — ensuring CLTs made more than 7yr before trust creation are ignored.
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