Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

Ten year anniversary: assets that have been relevant property for less than the full 10 years

Additions

IHTA84/S66 (2) operates a relief against the tax rate at the ten year anniversary when the whole or part of the fund has not been relevant property for the full preceding ten years. This normally relates to property such as

  • added funds,
  • accumulations of income,
  • the ending of an interest in possession.

Following the changes that were made to the IHT rules for trusts in Finance Act 2006, this could also relate to trusts that were previously subject to IHTA/S71 but do not provide - or are not modified before 6 April 2008 to provide - for absolute entitlement at age 18 or 25 (IHTM42087).

Applying the relief

Reduce the chargeable rate of tax for each of the successive quarters which have expired before the property in question became relevant property.

  • If the property has been in the fund for say 8 years and 2 months, then 7 complete successive quarters passed before it was relevant property.
  • If the property has been in the fund for the full ten years, the property has been relevant property for 40 quarters and there is no relief.

As S66(2) relief can arise in relation to a number of additions during each ten-year period, and as inflation is bound to change the value of the capitalised sums, it is necessary for trustees to keep good records so that the TYA value of each addition can be identified.

Accumulations

  • Accumulations of income convert the income into capital at the date the accumulation is made. (IHTM42162) This is why they feature so often in claims for S66(2) relief.
  • It is the responsibility of the taxpayer to claim any uplift between the addition and the ten year anniversary value. If the taxpayer cannot identify the TYA value of accumulations and requests Capital Taxes calculations, there is a computer programme ‘Accumulation exe.’ in ‘In House Applications’ that will assist you in this.
  • If there is no power of accumulation, either because the power has expired or never existed, then subsequent income does not convert to capital and the income is not within the TYA charge. In these circumstances the relief is not required.

Example

Assume that £100,000 of the £1M relevant property in the previous example (IHTM42087) was an accumulation of income which became capital on 20 December 2001. That part of the trust had not been relevant property for 23 complete successive quarters out of the 40 since the trust commenced.

The relief against the full chargeable value of £56,620 is

(£100,000 x the settlement rate of 5.662%) × (23 ÷ 40) (the number of quarters that are not relevant property) = £3,255.65.

So the tax to pay is the chargeable value of £56,620 less relief of £3,255.65 = £53,364.35.

Assessing

If you have entered the appropriate start dates for the assets, Compass will calculate the relief for you. You should check the calculation for accuracy through the RAT button and note any amendments in the assessment notes box. (IHTM31245)

If you are assessing on the manual template, enter the reduction as a relief against tax and include a note of your calculation in the assessment notes box.