As the ten year anniversary date is approaching, am I correct in thinking no ten year charge or exit charge would need to be reported as the value of the trust is under the nil rate band?
For a trust to not have to report ten-year charges and exit charges it must have no IHT liability and also be classed as an excepted trust.
Ten-Year Anniversary Charges
As regards the liability, it is not simply the trust assets which are taken into account in the ten-year computation per s66 IHTA 1984. See IHTM42085 which HMRC describe as Step 1 of the computation which includes other values too, These values are often nil but this must always be checked. The available nil rate band must then be calculated. See IHTM42086 which HMRC refer to as Step 2. If the available nil rate band at Step 2 exceeds the values from Step 1, there is no IHT liability.
If there is no IHT liability, you can then consider whether this is an excepted settlement within Reg 4 of SI 2008/606. To do this involves a two-stage process. Firstly, the general conditions must be met which are outlined by HMRC at IHTM06123:
- the settlor is domiciled in the UK at the time the settlement was set up and has remained so domiciled throughout the existence of the settlement until either the occasion of charge or the settlor’s earlier death,
- the trustees of the settlement are resident in the UK throughout the existence of the settlement, and
- there are no related settlements.
If any of these conditions are not met, then this will not satisfy the conditions to be classed as an excepted settlement and an IHT Return will be required.
Secondly, the value of the notional aggregate chargeable transfer (the figure in Step 1 above but before relief such as APR & BPR and before any liabilities) must also not exceed 80% of the nil rate band. See IHTM06124. Again, if these conditions are not met then an IHT Return will be required.
Exit Charges
The same also applies for exit charge calculations under either s68 or s69 IHTA 1984 – depending on whether the exit charges are before or after the trust is ten years old. See IHTM42214 and IHTM42115 for HMRC’s guidance on the calculations required. It must meet the general excepted settlement conditions outlined in IHTM06123 above and the value of the notional aggregate chargeable transfer (broadly the opening value or the ten year anniversary value depending on whether s68 or s69 IHTA 1984 apples, but again before reliefs such as APR & BPR and before liabilities) does not exceed 80% of the nil rate band. See IHTM06125. Again, if either of these sets of conditions are not met, an IHT Return will be required.
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