A relevant property trust pays Inheritance Tax on each tenth anniversary of the date it started, charged on the value of its relevant property the day before the anniversary. The rate is three tenths of the effective rate on a notional lifetime transfer taxed at 20% after whatever nil rate band is left, so it can never exceed 6%. Earlier gifts by the settlor, later additions, related settlements and same day additions can all push the rate up, while property that has not been in the trust for the full ten years is charged at a reduced rate.

Which trusts pay the ten year charge?

The charge, sometimes called the principal charge, is imposed by section 64 of the Inheritance Tax Act 1984 on any settlement that holds relevant property immediately before a ten year anniversary. HMRC’s guidance on trusts and Inheritance Tax says most property held in trust is relevant property. The exceptions are property in an interest in possession trust created before 22 March 2006, a transitional serial interest, an interest in possession created by will or intestacy, and property held for a disabled person, for a bereaved minor or in an age 18 to 25 trust. Qualifying life interests are explained in interest in possession trusts.

The anniversary runs from the date the settlement commenced. IHTM42221 explains that section 48A defines this as the time property first became comprised in the trust, not when it first became held on relevant property terms. For a will trust, section 83 takes the start date back to the date of death, and a trust created by an instrument of variation also dates from the death.

What value is charged?

Tax is charged on the value of the relevant property in the trust on the day before the anniversary. According to IHTM42081 this is the net value after debts and after business and agricultural relief, and grossing up never applies to the anniversary charge. The current value is used for this part of the calculation only; every other figure in the rate calculation is historic.

Undistributed income can also be caught. Section 64(1A), which applies to anniversaries on or after 6 April 2014, treats income that arose more than five years before the anniversary from relevant property, and has neither been distributed nor accumulated, as relevant property. IHTM42166 says it is normally enough to take the income account balance before the anniversary year and deduct the income of the previous five years. No quarterly reduction is given on this deemed relevant property.

How is the rate worked out?

Section 66 sets the rate at three tenths of the effective rate on a hypothetical chargeable transfer made immediately before the anniversary, taxed at lifetime rates. IHTM42085 to IHTM42087 break this into three steps.

  1. The notional transfer. For anniversaries on or after 18 November 2015 this is the current value of relevant property in the trust, plus the historic value of relevant property in any related settlement when it started, plus the value of any same day additions and the initial value of the other trust that received them.
  2. The nil rate band available. Start with the current nil rate band and deduct the settlor’s chargeable transfers in the seven years before the trust started, then the amounts that suffered exit charges in the ten years before the anniversary (IHTM42086). The result cannot be negative.
  3. The rate. Tax the excess of the notional transfer over the available band at 20%, express that tax as a percentage of the notional transfer, and multiply by 3/10. HMRC rounds percentages to three decimal places (IHTM42087).

If nothing is left of the nil rate band, the rate is the full 6%. IHTM42085 explains the design: a 20% entry charge and three anniversary charges at 6% roughly equal 40% once a generation. The nil rate band used is the one in force at the anniversary, currently £325,000; see the Inheritance Tax nil rate band.

What does HMRC’s own example show?

IHTM42087 gives this example. Tony created a trust in 2010 with £300,000, having made chargeable lifetime transfers of £50,000 in the previous seven years. No capital was appointed out. At the 2020 anniversary the trust was worth £450,000.

Step Amount
Notional transfer £450,000
Nil rate band available (£325,000 less £50,000) £275,000
Excess £175,000
Tax at 20% £35,000
Effective rate (£35,000 divided by £450,000) 7.777%
Actual rate (3/10) 2.333%
Tax (£450,000 at 2.333%) £10,498.50

Note that Tony’s own earlier gifts cost the trust £50,000 of nil rate band for its whole life, which is why the settlor’s cumulative total at the start date is one of the first things to establish. The seven year rule for gifts explains how that total is built up.

What happens when the settlor adds property?

Additions have two separate effects.

A reduced rate for the added property

Section 66(2) reduces the rate by one fortieth for each complete quarter of the ten year period that passed before the property became relevant property in the trust. In HMRC’s example at IHTM42088, Jane settled £500,000 in January 2010 and added a painting in June 2018. The painting was outside the trust for 33 complete quarters, so it bears only 7/40 of the rate. The same relief applies to accumulated income, which becomes capital when accumulated. Where the added cash is mixed with the original fund, HMRC accepts valuing the fund just before the addition and assuming even growth afterwards, which means trustees need good records of each addition.

A higher cumulative total

Section 67 applies where, after the trust started, the settlor made a chargeable transfer that increased the value of the trust. The settlor’s cumulative total used in the calculation becomes the higher of the seven years before the trust started and the seven years before the addition, ignoring the sum originally settled (IHTM42090). A small increase in value is ignored if it was not primarily intended to increase the value and did not add more than 5% (section 67(2)). A potentially exempt transfer is not a chargeable transfer unless the settlor dies within seven years, but a lifetime transfer into the trust is usually chargeable. A modest top up years later can therefore import a much larger cumulative total and raise the rate on the whole fund.

What are related settlements and same day additions?

Under section 62, two settlements are related if the same settlor made them and they started on the same day, unless one of them is wholly charitable. For anniversaries and exits on or after 18 November 2015, only the historic value of related relevant property settlements is brought in (IHTM42230).

Same day additions, in section 62A, were introduced by the Finance (No. 2) Act 2015 to stop the use of several pilot trusts created on different days and then funded on one day. A same day addition arises when the same person adds property or value to two or more trusts on the same day on or after 10 December 2014, and each trust held relevant property at some point. IHTM42233 notes that this covers additions of value, such as forgiving a loan to the trustees, and that related settlements cannot also be same day additions. Wills that create several trusts on death need checking against these rules.

How and when is the charge reported and paid?

For chargeable events on or after 6 April 2014, HMRC’s guidance says the trustees must both pay the tax and deliver form IHT100, with the relevant event form, by the end of the sixth month after the anniversary. Interest runs on late payment. Trustees can calculate the tax themselves in sections G and H of the IHT100 with the IHT100WS worksheet, or leave those sections blank for HMRC to calculate, provided the form arrives in good time. Some low value trusts are excepted from delivering an account.

What mistakes come up most often?

  • Using current values for related settlements or additions. Only the trust’s own relevant property is valued at the anniversary; the rest is historic.
  • Deducting business or agricultural relief from historic values. IHTM42165 allows relief against the current chargeable value but not against historic values used for the rate. See business relief.
  • Forgetting the settlor’s chargeable transfers in the seven years before the trust started.
  • Missing undistributed income more than five years old.
  • Treating the anniversary as fixed by the deed date when assets were added later, or by the date a trust became relevant property. The start date never moves.
  • Overlooking that exits between anniversaries take their rate from this calculation; see exit charges when property leaves a trust.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.