Proportionate charges: rate between ten year anniversaries
Under IHTA84/S69, the rate of charge is a proportion of the effective rate charged at the last ten year anniversary (TYA). (IHTM42083).
Again, the rate values are based on values of the settlement at the TYA, but you can retain the deduction of any AR or BR applied against the relevant property. (IHTM42165)
You must however recalculate the rate
- using the IHT threshold effective at the date of the exit event (so the rate may actually be lower than that effective at the TYA), and
- including any additions to the relevant property since the last TYA (valued at the date of addition) in the assumed chargeable transfer. IHTA84/S69 (2)
Recalculated effective rate% × (3 ÷ 10) = settlement rate %
Then apply a reduction to reflect the number of quarters that the transferred property has been relevant property since the last TYA. (IHTM42116)
Chargeable transfer (loss to the settlement after deducting any AR or BR, and grossed as appropriate) x settlement rate % = £total tax
The reduction is the relief as property held for (X ÷ 40) number of quarters = £relief.
The IHT to pay is the total tax less the relief.
£100,000 land and £60,000 unquoted shares were first settled on discretionary trusts by Miss B on 5 September 1991. She made no related settlements but had previously made a transfer of £20,000 to another discretionary trust in 1989.
At the ten year anniversary on 5 September 2001, the land was worth £300,000 and the unquoted shares were worth £200,000. The shares qualified for business property relief. The TYA inheritance tax charge of £4,680 was paid at the appropriate time.
- See screenshot 1 for the TYA charge
Miss B made an addition of £15,000 to the trust in 2002.
On 12 May 2004 the shares were floated on the stock exchange and were appointed from the trust on 18 May 2004 at a value of £700,000. At this time they did not qualify for business property relief, so the chargeable transfer according to the IHT100 was £700,000.
- See screenshot 2 to view manual template calculations.
- See screenshot 3 to view Compass calculations.
The proportionate charge to pay on the disposal is £2,400 (plus or minus £1).