Trustee Liability for Inheritance Tax: Who Pays IHT on Discretionary Trusts?
Trustees of relevant property trusts (discretionary trusts, accumulation trusts, most will trusts) are primarily liable for IHT 10-year periodic charges and exit charges. The settlor bears the entry charge on lifetime settlements. Understanding who pays, when, and how protects trustees from personal liability.
IHT Liability by Charge Type
| IHT Charge | Primary Liable | Secondary Liable | Statutory Basis |
|---|---|---|---|
| Entry charge (CLT into discretionary trust) | Settlor (transferor) | Trustees (if settlor does not pay) | s199 IHTA 1984 |
| Entry charge (death — assets passing to relevant property trust under will) | Personal representatives of the estate | Trustees (for their share of estate IHT) | s200 IHTA 1984 |
| 10-year periodic charge | Trustees | None specified — trustees are primary | s61, s199 IHTA 1984 |
| Exit charge (distribution from trust) | Trustees | Beneficiary receiving the distribution | s65, s199 IHTA 1984 |
| IHT on PETs becoming chargeable on death (failed PETs within 7 years) | Donee (person who received the gift) | Personal representatives of the deceased donor | s199(2) IHTA 1984 |
| IHT on gifts with reservation included in death estate | Personal representatives | Donee (person in possession of the reserved property) | s200 IHTA 1984 |
Key Payment Deadlines
Entry charge (CLT)
6 months from end of month of transfer
If settlor makes a CLT in January, IHT is due by 31 July.
10-year periodic charge
6 months from end of month of the 10-year anniversary
If trust created in March 2015, first 10-year date is March 2025 — IHT due by 30 September 2025.
Exit charge
6 months from end of month of the distribution
If trustees distribute in October, IHT on exit charge is due by 30 April the following year.
Late payment interest
Accrues from the due date (not the filing date)
HMRC charges interest at Bank of England base rate + 3.75% (2026). Compounded daily on the outstanding IHT.
Frequently Asked Questions
Are trustees personally liable for IHT on a discretionary trust?
Yes — trustees are primarily liable for IHT on 10-year periodic charges and exit charges from relevant property trusts (most discretionary trusts and certain will trusts). Under s199 IHTA 1984, the person who is liable for a transfer of value includes the trustees of a settlement. For the 10-year charge (under s61 IHTA 1984) and exit charges (under s65 IHTA 1984), the trustees are the primary liable party — there is no-one else who can be pursued first. The IHT is a liability of the trust fund (paid out of trust capital or income), not a personal liability of the individual trustees — provided the trustees act within their powers and pay the IHT from trust assets. However, if trustees make distributions that are exit charges without paying the IHT first, or if the trust has insufficient assets, individual trustees may face personal liability for the shortfall. Trustees should ensure they have sufficient liquid assets in the trust to meet expected IHT charges before making distributions or accepting new settlements.
What are the IHT account obligations for trustees of discretionary trusts?
Trustees of relevant property trusts must submit an IHT100 account (Inheritance Tax Account for Trust Charges) to HMRC when: (1) An entry charge arises (chargeable lifetime transfer into the trust by the settlor exceeds the available nil-rate band). (2) A 10-year periodic charge arises — broadly where the trust value exceeds the nil-rate band (currently £325,000) at the 10-year anniversary. (3) An exit charge arises on a distribution — if the charge is above the minimum reporting threshold. HMRC has published detailed guidance on when IHT100s are required vs when an 'excepted settlement' regime applies (small trusts with modest values may fall within excepted settlements and not need to file). The IHT100 must be submitted and the IHT paid within 6 months of the end of the month in which the chargeable event occurred. Interest accrues from the due date at HMRC's current rate (3.75% above the Bank of England base rate as at 2026) on any late payment.
Who pays IHT when assets pass into a discretionary trust on death under a will?
Where a will creates a discretionary trust, assets pass into the trust on the testator's death. The initial IHT at death is paid by the personal representatives (executors) as part of the estate administration — trustees do not pay entry IHT for assets that pass via the estate. Once the trust is established and funded with assets from the estate, the trustees take over responsibility for future IHT: the 10-year periodic charges (first arising 10 years after the trust was created — i.e. 10 years after death), and exit charges on distributions. Executors who are also trustees must distinguish between their capacity as executor (liable for estate IHT) and trustee (liable for trust periodic/exit charges). The trust deed and legal advice should clarify the two roles. Where executors create a will trust by assenting assets into it, the trust creation date for 10-year charge purposes is the date of death, not the date of the assent.
Can HMRC pursue a beneficiary for IHT if trustees fail to pay?
Yes — HMRC has secondary liability provisions allowing it to pursue beneficiaries in certain circumstances. Under s199(1)(b) IHTA 1984, a person who receives a distribution from a trust on which an exit charge arises can be pursued by HMRC for the IHT if the trustees fail to pay. The beneficiary's liability is limited to the amount of the distribution received — they cannot be asked to pay more than they received. In practice, HMRC will pursue trustees first. The practical risk for beneficiaries arises where: (1) the trustees are insolvent or have distributed all trust assets; (2) the trust was structured to give value to beneficiaries before paying the IHT; or (3) the trustees are the same as the beneficiaries (common in family discretionary trusts). Advisers sometimes recommend that beneficiaries withhold a portion of large distributions until the IHT exit charge has been paid and confirmed by HMRC.
How is IHT paid from a trust that holds illiquid assets?
Trustees facing a 10-year charge or exit charge on a trust holding illiquid assets (such as unquoted shares, farmland, or commercial property) may face a practical difficulty — the IHT is due in cash but the trust has no liquid funds. Options include: (1) Instalment option (s227 IHTA 1984): IHT on certain asset types (unquoted shares in controlling companies, land and buildings, some business assets) can be paid in 10 equal annual instalments — with interest on outstanding instalments. (2) Borrowing: trustees can take a short-term trust loan to fund the IHT payment, repaying it from trust income or future realisation of assets. The loan is a trust liability and reduces the trust capital. (3) Partial distribution: trustees may distribute some trust assets and use the proceeds to fund the IHT — though this itself may trigger an exit charge (on the distributed portion). (4) Negotiating with HMRC: in cases of genuine hardship, HMRC may agree time to pay — though this is discretionary and interest continues to accrue.
What is the excepted settlements regime and when does it apply to reduce trustee reporting obligations?
The Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2008 (SI 2008/606) provide that certain small or simple trusts do not need to submit an IHT100 even where a 10-year or exit charge technically arises. A settlement qualifies as an 'excepted settlement' at the 10-year anniversary if: (1) it was created by an individual (not a company); (2) its value at the 10-year anniversary does not exceed 80% of the nil-rate band (£260,000 at the current £325,000 NRB); (3) there have been no related settlements and no added property; (4) the settlor was domiciled in the UK at the date of settlement; and (5) no trustee is a company. Where these conditions are met, no IHT100 is required even though the charge technically arises. Trustees should still calculate the 10-year charge to confirm it is nil or falls within the excepted settlements threshold — the exemption from filing is not an exemption from the charge itself.
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