Relevant property trusts: introduction
The trusts can be effectively divided into two categories
Charging provisions are explained in more detail at section 4 of this manual from IHTM04095.
In general terms, when a relevant property trust is set up and assets transferred into it, the settlor makes an immediately chargeable transfer, chargeable at half the death rates.
If the settlor dies within 7 years, there may be an additional tax recalculation. (IHTM14571)
At each ten year anniversary (TYA) from the date the trust was set-up, there is a ‘principal’ charge of 6% maximum on the value of the relevant property (assets after reliefs) in the trust. If funds were settled later than the date of set-up (or last TYA) then an allowance is made to tax those assets roughly in proportion to how long they have been in the trust (done by dividing the ten year period into fortieths and using the number of fortieths to calculate the percentage rate of tax chargeable).
Appointments out of the trust capital are liable to a separate ‘proportionate’ charge of a maximum 6% rate. There are different rules for charges before and after the first TYA. Again, the number of fortieths the assets have been in the trust since the last TYA or the set up of the trust are used to calculate the rate to charge the assets leaving the trust.
Special trusts are not relevant property and so are not liable for TYA or proportionate charges. Transfers into these trusts are generally (but not always) PETs, rather than immediately chargeable transfers by the settlor.
Failures of these trusts can incur a flat rate charge (IHTM42801). S71F sets out how any proportionate charge on an 18-25 trust is calculated.
Employee Benefit Trusts (EBTs) are a type of special trust. Detailed guidance is given as a separate sub-chapter of this manual. (IHTM42900)