IHT Trust Periodic Charge UK: The 10-Year Anniversary Charge and Exit Charges on Discretionary Trusts (2026)
Discretionary trusts face a 6% IHT charge every 10 years on trust assets above the Nil Rate Band (£325,000). Exit charges apply when assets leave the trust. NRB Discretionary Will Trusts typically avoid the periodic charge — but trustees must review trust values as they grow. From April 2026 the BPR/APR cap affects trusts holding business or farm assets.
| Trust Type | Periodic Charge? | Exit Charge? | Notes |
|---|---|---|---|
| Discretionary trust (above NRB) | 6% | Yes | Relevant property regime; charge on excess above NRB |
| NRBDT funded below NRB (£325k) | Nil | Nil/low | Trust value ≤ NRB; no chargeable amount |
| Bare trust | None | None | Not relevant property — beneficiary absolutely entitled |
| IPDI (life interest will trust) | None | None | Transitional/qualifying IPDI — not relevant property |
| Bereaved minor trust (s71A) | None | None | Excluded from relevant property regime |
| Age 18–25 trust (s71D) | None (to age 18) | 18–25 only | Exit charge when beneficiary reaches 18–25 |
Trust Periodic Charges and Exit Charges Explained
What is the relevant property regime?
Discretionary trusts — trusts where no beneficiary has a fixed right to income or capital — are subject to what HMRC calls the 'relevant property regime' (ss58–69 IHTA 1984). Under this regime, the trust itself is treated as a taxable entity subject to periodic IHT charges. The relevant property regime applies to: discretionary trusts created during the settlor's lifetime (inter vivos settlements); discretionary will trusts (set up by will on the testator's death); accumulation and maintenance trusts created before 2006 that were not converted to bare trusts or qualifying trusts by 2008; certain trusts for bereaved adults where the property has not been distributed. Trusts that are NOT relevant property and therefore not subject to periodic charges include: bare trusts (where the beneficiary is absolutely entitled); immediate post-death interests (IPDI) — life interest trusts created by will on death; trusts for disabled persons (s89 IHTA 1984); bereaved minor trusts (s71A IHTA 1984); age 18–25 trusts for minor beneficiaries (s71D IHTA 1984). The distinction matters enormously for IHT planning — only trusts within the relevant property regime face the 10-year periodic charge and exit charges.
The 10-year anniversary charge: how it is calculated
Every 10 years from the date the trust was created, a periodic charge is imposed on the value of the relevant property in the trust. The mechanics: (1) Value the trust assets at the 10-year anniversary date. (2) Subtract the settlor's available Nil Rate Band (NRB) at that date (£325,000 in 2026/27) — reduced by any CLTs (chargeable lifetime transfers) the settlor made in the seven years before the trust was created. (3) The excess above the available NRB is the chargeable amount. (4) The rate is 30% of the IHT lifetime rate (20%) = 6%. The calculation: Chargeable amount × 6% = periodic charge. Example: a discretionary trust holds £500,000 of investments. Settlor had no CLTs in the 7 years before settlement. Available NRB: £325,000. Chargeable amount: £175,000. Periodic charge: £175,000 × 6% = £10,500. This charge is due every 10 years and is paid from the trust assets. The effective annual cost is the periodic charge divided by 10 — equivalent to 0.6% per year on the chargeable amount. For trusts well below the NRB, the periodic charge is nil.
Nil Rate Band Discretionary Trusts: sheltered by the NRB
The most common use of a discretionary will trust is the Nil Rate Band Discretionary Trust (NRBDT) — a trust established by a will into which assets up to the NRB (£325,000) are directed. A properly drafted NRBDT should have a periodic charge of nil or very close to nil, because the trust value does not exceed the NRB: Chargeable amount = Trust value (£325,000 or below) − NRB (£325,000) = nil or close to nil. The attraction of the NRBDT is that it can shelter the first death NRB from being 'wasted' by the spousal exemption, while providing flexibility for the surviving spouse (who can be a discretionary beneficiary of the NRBDT) and children. As the years pass and the NRB remains frozen (to April 2030), the trust assets may grow to exceed the NRB — at which point a periodic charge begins to arise on the excess. Trustees of NRBDTs should review trust values periodically to assess whether a periodic charge is arising.
Exit charges: IHT when assets leave the trust
When property is distributed from a relevant property trust to a beneficiary — or when the trust ceases to be relevant property (e.g. by converting to a bare trust) — an exit charge arises. The exit charge is proportional to: (1) The last 10-year periodic charge rate (or the rate that would have applied at the most recent 10-year anniversary); (2) The number of complete quarters (three-month periods) since the last 10-year anniversary (or since the trust was created, for distributions before the first 10-year anniversary). The formula: Exit charge = value of property leaving trust × (30% × effective periodic rate) × (quarters elapsed / 40). Example: a trust created 6 years ago (24 quarters since creation) distributes £100,000. The effective rate at this point (if the first 10-year anniversary had fallen now) would be 6% on the amount above the NRB. Assume the trust has never been above the NRB and the exit charge effective rate would have been 0%: exit charge = nil. Where the trust is above the NRB at the exit point, the exit charge can be material. Trustees should calculate exit charges with care — they are often overlooked.
Life insurance trusts and the periodic charge
A common misconception is that life insurance trusts — used to hold whole-of-life policies outside the estate — automatically face 10-year periodic charges. In practice, most life insurance trusts are structured as either bare trusts (where named beneficiaries are absolutely entitled — not relevant property; no periodic charge) or discretionary trusts (relevant property — periodic charge potentially applies). Where a whole-of-life policy is held in a discretionary life insurance trust: during the donor's lifetime, the trust value is the surrender value of the policy (often low or nil for term policies; may be significant for whole-of-life policies that have built up a surrender value). The 10-year periodic charge applies on the surrender value at the anniversary date, to the extent it exceeds the available NRB. On the death of the insured: the policy pays out to the trust. This creates a large trust asset immediately — the periodic charge will apply at the next 10-year anniversary on the payout value. The trustees should then distribute the death benefit to the named beneficiaries promptly — triggering an exit charge (which is typically low if the distribution occurs shortly after the 10-year anniversary). Lump-sum policies held in bare trust are not subject to periodic or exit charges as the named beneficiary is absolutely entitled.
BPR and APR on trust assets: post-April 2026
Where a discretionary trust holds qualifying business property (BPR) or agricultural property (APR), the relevant relief reduces the value of trust assets subject to the periodic charge. Before April 2026, 100% BPR or APR could eliminate the 10-year charge entirely on qualifying assets. From 6 April 2026, the Budget 2024 cap limits 100% BPR/APR to £1,000,000 per trust per 10-year period (for trusts with a single settlor — trustees must also account for multiple trusts set up by the same settlor; the cap is shared). Above £1m of BPR/APR qualifying assets, only 50% relief applies — effective rate of 6% × 50% on the above-cap excess = 3%. This can significantly increase periodic charges for trusts holding agricultural land or business assets worth more than £1m. Trustees should review trust asset compositions and model the impact of the April 2026 cap on future periodic charges — and whether distributions or restructuring before the next 10-year anniversary date could reduce the exposure.
Planning to minimise trust IHT charges
Strategies to reduce the impact of periodic and exit charges include: (1) Keep trust value below the NRB: fund discretionary trusts up to (but not over) the available NRB — periodic charges arise only on the excess. (2) Distribute assets before the 10-year anniversary: exit charges before the first 10-year anniversary are calculated on a reduced basis; distributing before the anniversary can be cheaper than waiting. (3) Hold BPR/APR qualifying assets in the trust: the £1m BPR/APR cap (from April 2026) still provides relief on the first £1m of qualifying trust assets. (4) Use separate trusts for separate NRBs: multiple trusts set up on different dates each have their own NRB (subject to anti-avoidance rules that aggregate same-day trusts from the same settlor under FA 2006 changes). (5) Convert from discretionary to bare trust before the 10-year anniversary: once a beneficiary becomes absolutely entitled (e.g. a child reaches a specified age), converting the interest to a bare trust can remove the asset from the periodic charge regime — though an exit charge applies on conversion.
Frequently Asked Questions
What is the 10-year inheritance tax charge on a discretionary trust?
Discretionary trusts (relevant property trusts) pay an IHT periodic charge every 10 years from the date of creation. The charge is 6% of the trust's value above the Nil Rate Band (£325,000 in 2026/27). Example: a trust holding £500,000 with an available NRB of £325,000 pays 6% × £175,000 = £10,500 every 10 years (£1,050/year effective). Trusts below the NRB pay no periodic charge.
Does a Nil Rate Band Discretionary Trust (NRBDT) pay any IHT?
Usually not — or very little. A NRBDT is funded up to the NRB (£325,000 or below) so the periodic charge calculation (trust value minus NRB) produces nil or a negligible chargeable amount. As trust assets grow or if the NRB remains frozen, the value may exceed the NRB — at which point a periodic charge begins to arise on the excess. Trustees should review the trust's value as it approaches the NRB each decade.
What is an IHT exit charge on a trust?
An exit charge arises when property leaves a relevant property trust — by distribution to a beneficiary, or by ceasing to be relevant property. The charge is a proportionate fraction of the last 10-year periodic charge rate, based on the number of complete quarters since the last anniversary (or since the trust was created). Where the trust has never had a periodic charge because it is below the NRB, the exit charge is typically nil or very small.
Is a life insurance trust subject to the 10-year IHT charge?
It depends on the trust structure. If the life insurance trust is a bare trust (beneficiaries absolutely entitled), it is not relevant property and no periodic charge applies. If it is a discretionary trust, the surrender value of the policy (which may be low for term policies; higher for whole-of-life policies) is subject to a 10-year periodic charge on any amount above the NRB. On death and payout, the lump sum should be distributed promptly to beneficiaries to trigger only a proportionate exit charge rather than the next full 10-year charge.
Does Business Property Relief reduce the 10-year trust charge?
Yes — where a trust holds qualifying BPR or APR assets, the relief reduces the trust value subject to the periodic charge. Before April 2026, 100% BPR/APR could eliminate the charge entirely on qualifying assets. From 6 April 2026, the combined BPR/APR cap of £1m per trust (shared across same-settlor trusts) limits 100% relief — above £1m, only 50% BPR/APR applies (effective periodic charge rate of 3% on the above-cap excess).
Set Up Your Will Trust Correctly
A Nil Rate Band Discretionary Trust in your will can shelter up to £325,000 from IHT on the second death — with typically no periodic charges if kept below the NRB. WillSafe will kits for England and Wales include guidance on will trusts and how to set them up correctly for your family's circumstances.
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