Inheritance Tax And Trusts: Have You Missed The 10 Year Anniversary Deadline?

Year Published: 2017

Trustees are responsible for managing the assets of a trust. As part of their role they must also comply with their duties to HMRC. One of these being to pay any inheritance tax charges every 10 years.

What’s the 10 year anniversary deadline?

Aalia Ijaz, Solicitor at SAS Daniels LLP

Aalia Ijaz, Solicitor

Some trustees may not be aware that inheritance tax is charged at each 10 year anniversary of the trust. It is the trustee’s responsibility to assess the value of the trust assets and make a payment to HMRC for any inheritance tax due.

There will be many trusts for which the 10 year anniversary is fast approaching as 10 years ago the rules on inheritance tax changed. Since 9 October 2007, it has been possible to transfer any unused percentage of the inheritance tax threshold known as the Nil Rate Band (NRB) from a deceased spouse or civil partner to the surviving spouse or civil partner. However, prior to this date it was very common for individuals to leave the value of the Nil Rate Band in a Discretionary Trust within their Will. This enabled a couple to take advantage of two Nil Rate Bands and was therefore a useful inheritance tax planning tool.

A Discretionary Trust is still used today however, it is now more commonly used to protect assets for family members. It is important to remember the 10 year anniversary charge also applies to other types of trusts.

How can a trustee work out the amount of inheritance tax due?

The amount of tax due will be determined by the net value of the trust assets on the day before the 10 year anniversary. Inheritance tax is due if the total net value of the trust assets is more than the Nil Rate Band (which is currently £325,000). The value of the trust assets will include any transfers and chargeable gifts made by the person who set up the trust in the last 7 years and also any distributions made from the trust in the 10 years prior to the anniversary. The calculation can be complicated and trustees may prefer to take professional advice on the precise calculation. A professional can also assist trustees with preparing the form to be submitted in order to ensure that trustees are complying with their duties.

If the form and the payment are not submitted to HMRC within 6 months of the 10 year anniversary HMRC may impose a penalty and interest will begin to accrue on the amount due.

For more information or advice on the 10 year anniversary charge or any other enquiries regarding trusts and inheritance tax, please contact Aalia Ijaz in our Trusts team on 0161 475 1218.

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