Discretionary Trust 10-Year Charge: A 2026 Guide

Quick answer

The discretionary trust 10-year charge is an inheritance tax that HMRC applies to most discretionary trusts on every tenth anniversary of their creation. The maximum rate is 6% of the trust value above the available nil-rate band of GBP 325,000 (2026/27), but the effective rate is normally far lower. Trustees calculate and pay it; the residence nil-rate band does not apply.

Why trusts face a periodic charge

Inheritance tax (IHT) is usually charged when someone dies and passes on their estate. The problem with a discretionary trust is that no single person owns the assets -- the trustees hold them for a flexible class of potential beneficiaries. Without special rules, family wealth could sit in such a trust for generations and never face IHT.

To close that gap, the law treats most discretionary trusts as "relevant property" and applies IHT at intervals instead of on a death. There are two trigger points: the 10-year anniversary (the periodic or principal charge) and capital leaving the trust (the exit or proportionate charge). This guide focuses on the 10-year charge, with a short section on exits.

Which trusts are caught

The regime applies to relevant property trusts. In practice this means:

• Most discretionary trusts created during the settlor's lifetime.
• Most trusts created on or after 22 March 2006, including many interest-in-possession trusts set up after that date.
• Many older discretionary trusts created before 2006.

Some trusts sit outside the regime, including bare trusts (where a beneficiary is absolutely entitled), qualifying trusts for disabled people, and certain immediate post-death interests. The trust deed and the date of creation matter a great deal, so do not assume your trust is in or out without checking.

The core idea: a maximum of 6%

The headline rate people remember is 6%. That is the maximum. It comes from the lifetime IHT rate of 20% (half the 40% death rate), applied to a notional calculation and then scaled down. Because the calculation gives you a fraction of 20%, the most you can ever reach on a 10-year charge is 6% of the chargeable value.

Crucially, you only pay on value above the available nil-rate band (NRB). For 2026/27 the standard NRB is GBP 325,000. If the relevant property in the trust is worth no more than the available NRB, the charge is usually nil.

How the calculation works, step by step

The full mechanics are detailed, but the shape of the calculation is consistent. Here is the logic trustees follow.

Step 1: Value the relevant property

Value the trust assets at market value on the day before the tenth anniversary. Reduce qualifying assets by business relief or agricultural relief where they apply. The result is the chargeable value.

Step 2: Work out the available nil-rate band

Start with GBP 325,000. Reduce it by:

• The settlor's chargeable transfers in the seven years before the trust was created.
• Certain amounts that have already left the trust and been subject to an exit charge during the current ten-year period.

The remaining figure is the available NRB for this charge.

Step 3: Find the chargeable amount and notional tax

Subtract the available NRB from the chargeable value. Apply the 20% lifetime rate to that excess to get a notional tax figure.

Step 4: Convert to an effective rate

Divide the notional tax by the full chargeable value, which gives an effective rate of no more than 20%. Then multiply by 30% (the "settlement rate" fraction). This is why the cap works out at 6% (20% x 30% = 6%).

Step 5: Adjust for incomplete quarters

If any relevant property was added partway through the ten years, the rate can be reduced for the quarters it was not in the trust. Most established trusts holding the same property throughout do not need this adjustment for that property.

Worked illustration (simplified)

The table below shows the principle for a trust holding only cash, where the settlor made no chargeable transfers in the seven years before creating it. Figures are illustrative and rounded to show the mechanism only.

Trust A is at the NRB, so the charge is nil. Trust B is double the NRB, and the effective charge works out at 3% -- well under the 6% ceiling. Only a trust whose value vastly exceeds the NRB approaches the maximum.

Exit charges between anniversaries

When capital leaves the trust -- for example a distribution to a beneficiary -- an exit charge (proportionate charge) may apply. After the first ten-year anniversary, the exit rate is based on the effective rate set at that anniversary, scaled by the number of complete quarters since then. So an exit shortly after an anniversary attracts proportionally less than one made nine years later.

Exits during the very first ten years use a different starting point, based on the value when the trust was created rather than a prior anniversary rate. As with the periodic charge, if the available NRB covers everything, the exit charge can be nil.

Reporting and deadlines

Trustees, not beneficiaries, are responsible for the 10-year charge. The key points:

• The charge arises on the tenth anniversary of the date the trust was created.
• Any tax is due within six months from the end of the month in which the anniversary falls.
• Trustees may need to file IHT account form IHT100 even when no tax is payable, depending on value and circumstances.
• Late payment can lead to interest and penalties.

Keep clean records of the creation date, the settlor's prior transfers, valuations at each anniversary, and any exits. Missing paperwork is the most common cause of avoidable cost and stress.

How this fits with the wider IHT picture

The 10-year charge sits within the broader inheritance tax system. On death, the standard NRB of GBP 325,000 and the residence NRB of GBP 175,000 can apply to an individual's estate, with IHT at 40% above the available bands (or 36% where at least 10% of the net estate is left to charity). Trust charges are deliberately lighter -- a maximum of 6% every ten years -- because they recur over time rather than landing once on death.

If you want to model the death-estate side of your planning, try our calculator first, then layer trust advice on top.

You can also explore how lifetime gifting, the seven-year rule and the available NRB interact before deciding whether a trust is the right tool at all.

Planning legitimately

You cannot wish the 10-year charge away, but you can manage it:

• Keep the relevant property at or below the available NRB where that suits the family's goals -- a trust at or under GBP 325,000 of chargeable value often pays nothing.
• Make full use of business relief and agricultural relief on qualifying assets.
• Time distributions thoughtfully, bearing in mind exit charges scale with quarters elapsed.
• Be wary of "pilot trust" strategies using multiple trusts created on the same day; anti-avoidance rules largely neutralise the benefit.

Trust taxation is genuinely complex and changes over time. Treat anything you read online -- including this guide -- as background, and confirm the live rules on gov.uk and with a regulated adviser before acting.

Comparison: 10-year charge vs death IHT

Bottom line

The discretionary trust 10-year charge is the price of holding wealth in a flexible trust outside any individual's estate. The 6% headline is a ceiling, not the norm: most well-managed trusts pay far less, and many at or below GBP 325,000 of chargeable value pay nothing. The two things that catch families out are forgetting that the residence nil-rate band does not apply, and missing the six-month reporting deadline. Get the valuation right, watch the calendar, and take advice early.