ATXP6 UK
Syllabus A3. Inheritance Tax A3e. Trusts

A3eiii-v. IHT implications of trusts

Syllabus A3eiii-v)

iii) Advise on the inheritance tax implications of transfers of property into trust
and
iv) Advise on the inheritance tax implications of property passing absolutely from a trust to a beneficiary
and
v) Identify the occasions on which inheritance tax is payable by trustees

Trusts

IHT implications

There are 2 IHT charges when property passes into/out of a trust for inheritance tax

  1. Principal Charge

    This must be paid every 10th anniversary by the trustees.

    It is 6% of the value of the property every 10th anniversary. 

    For example, property passed into a trust in 2010 when it was valued at £1,000,000 and in 2020, it is valued at £1,500,000. 

    The principal charge will be 6% * £1,500,000 = £90,000.

  2. Exit Charge

    This must be paid when the property leaves the trust.

    For example,  property passed into a trust in 2010 when it was valued at £1,000,000, the donor died in 2018 and the property will be passed on to the beneficiary in 2018 when it is valued at £1,200,000.

    The exit charge will be 6% * £1,200,000 = £72,000.

This is all you need to know about these charges.  You will not be asked to compute the them in your exam.