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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Assessing: calculations: lifetime events: settlement charges

For chargeable events in relation to discretionary settlements, you can prepare your calculations:

  • on COMPASS (IHTM31241), where appropriate
  • on the manual calculation template (IHTM31301)

Principal and proportionate charges

The charging provisions (IHTM04096) provide for two charges on property in existing discretionary trusts (known as relevant property),

  • the principal charge, arising on each ten year anniversary of the discretionary trust, and
  • the proportionate charge, arising when the relevant property is distributed from the trust, or is reduced in value by a disposition.

In both cases, you must first work out the rate of tax you will charge, and then go on to calculate the tax liability.

Flat rate charge

A flat rate charge will arise where assets cease to be held on special trusts (IHTM04098).

The rate of tax depends on the length of time the assets were held in the special trust.

Calculating the liability

Guidance to help you establish chargeable values and work out the tax liability can be found at the settlements section (IHTM42070) of this manual.