What is Relevant Property Trust Charge?

Full Definition

Most discretionary trusts in the UK fall within the "relevant property" Inheritance Tax regime, which taxes the trust itself periodically rather than relying solely on the death of a beneficiary, reflecting the fact that assets held in a discretionary trust do not belong outright to any individual beneficiary and so cannot easily be captured by ordinary death-based Inheritance Tax rules. Under this regime, a periodic charge (also called the ten-year anniversary charge) applies on each ten-year anniversary of the trust's creation, calculated on the value of the trust's assets at that point above the Inheritance Tax nil-rate band (£325,000 for 2026/27, though the trust's own available nil-rate band can be reduced by chargeable transfers the settlor made in the seven years before setting up the trust). The periodic charge rate is a maximum of 6% of the value above the available nil-rate band, calculated more precisely as 30% of the trust's "effective rate," which is itself based on 20% of the lifetime rate that would have applied to a chargeable transfer of that size -- in practice this formula rarely produces the full 6% for typical trusts, but it can approach it for very large trusts with no available nil-rate band left. Separately, an exit charge (or "proportionate charge") applies whenever capital leaves the trust between ten-year anniversaries, such as a distribution of capital to a beneficiary, calculated on a time-apportioned basis reflecting how much of the ten-year period had elapsed since the last periodic charge (or the trust's creation, for the first ten years), so that a distribution made shortly after a periodic charge triggers only a small exit charge, while one made just before the next anniversary triggers a proportionately larger one. Worked example: a discretionary trust set up ten years ago holds investments now worth £625,000, with the settlor having made no other chargeable transfers in the seven years before setting it up, so the full £325,000 nil-rate band is available to the trust; at the ten-year anniversary, £300,000 of the trust's value falls above the nil-rate band, and after applying the relevant property formula the trustees calculate an effective rate of around 3%, giving a periodic charge of roughly £9,000 due to HMRC -- illustrating why trustees of long-running discretionary trusts need to plan for and budget these periodic six-monthly-reportable charges as a routine cost of the trust structure, quite separate from any Inheritance Tax that might arise on the settlor's own estate.

See Also