Discretionary Trust 10-Year Anniversary Charge 2026: How It Works

What is a "relevant property" trust?

Most discretionary trusts set up in the UK fall within the "relevant property" regime for inheritance tax — a framework designed to prevent wealth being sheltered indefinitely in trust structures without ever facing an inheritance tax charge, since trust assets don't form part of any individual's estate in the way personal assets do.

Because relevant property trusts sit outside any individual's personal estate, HMRC instead applies periodic charges directly to the trust itself, at two key points: every 10 years, and whenever capital leaves the trust.

The 10-year anniversary charge

On each 10-year anniversary of the trust's creation, trustees must calculate whether an inheritance tax charge is due, based on the value of the trust's relevant property at that point.

How the charge is calculated

1. Value the trust assets at the 10-year anniversary.
2. Deduct the nil-rate band available to the trust — this isn't automatically the full standard nil-rate band (£325,000); it depends on:
   • The settlor's chargeable lifetime transfers in the 7 years before setting up the trust, which reduce the band available.
   • Whether the settlor created other trusts on the same day — these share and reduce the effective nil-rate band available per trust.
3. Apply the rate to any excess above the available nil-rate band. The maximum rate is 6% — calculated as 30% of the standard 20% lifetime rate applied to chargeable transfers.

Worked illustration

Suppose a discretionary trust holds assets worth £600,000 at its 10-year anniversary, and the settlor made no other chargeable transfers or trusts, meaning the full £325,000 nil-rate band is available to this trust.

In practice, the effective rate applied could be lower than the full 6% depending on the specific calculation factors (such as whether all the trust's assets have been "relevant property" for the full 10 years), so the actual figure could be less than £16,500 — trustees should work through HMRC's detailed calculation method or take professional advice for the precise figure.

Exit charges: what happens between anniversaries?

If capital leaves the trust between 10-year anniversaries — for example, trustees distribute a lump sum to a beneficiary, or wind the trust up entirely — an exit charge (also called a proportionate charge) may apply.

The exit charge is calculated with reference to:

• The effective rate that applied (or would have applied) at the last 10-year anniversary, and
• The proportion of the 10-year period that has elapsed since that anniversary (or since the trust was set up, for exits before the first anniversary).

This ensures that capital leaving the trust part-way through a 10-year cycle still faces a proportionate share of the charge, rather than escaping it entirely by timing a distribution just before the next anniversary.

Simplified exit charge example

If a trust's effective rate at its last 10-year anniversary was 3%, and capital is distributed 5 years (half the 10-year cycle) after that anniversary, the exit charge would broadly be calculated as a proportion of that 3% rate reflecting the elapsed time — resulting in a lower effective charge than the full periodic rate, roughly half in this simplified scenario, though the actual formula involves specific HMRC calculation steps.

Why this matters for trustees and settlors

Failing to identify a 10-year anniversary or exit charge, or filing late, can result in penalties and interest on top of the tax itself — so ongoing professional trust administration (or at minimum, a clear diary system) is important for anyone acting as a trustee of a relevant property trust.

Planning considerations

1. Track the settlor's gifting history. Chargeable transfers in the 7 years before the trust was created reduce the nil-rate band available to the trust — this needs documenting clearly for the 10-year calculation.
2. Consider timing of distributions. Since exit charges are proportionate to time elapsed since the last anniversary, the timing of distributions can affect (though rarely dramatically) the tax cost of moving capital out of the trust.
3. Keep valuations up to date, particularly for trusts holding property or business assets, since accurate valuation at the 10-year point is central to the whole calculation.
4. Get professional support for the IHT100 filing and calculation — the rules involve several technical steps (rates, fractions, and historic transfer tracking) that are easy to get wrong without trust taxation experience.

Summary

Discretionary trusts within the relevant property regime face a periodic inheritance tax charge every 10 years, capped at a maximum of 6% of the value above the trust's available nil-rate band, plus proportionate exit charges when capital leaves the trust between anniversaries. While the maximum rate sounds significant, most trusts pay considerably less in practice once the detailed calculation is applied. Trustees carry the responsibility for identifying these charges, valuing trust assets, and filing the correct returns on time — making proactive trust administration, not reactive scrambling near a deadline, the sensible approach.