Just over ten years ago major changes were made to the way that most trusts are treated for Inheritance tax (IHT) bringing most within something called the “Relevant Property Trust Regime”. This regime seeks to impose 10 year and exit charges on money held within trusts and as a result many trusts formed in 2006 (when legislation changed) could by now have reached their tenth anniversary.
So is it a happy birthday?
Much will depend on the value of the trust assets and what planning has been undertaken up to the first 10-year anniversary. What is clear is that over the last 10 years asset values have risen (especially property) notwithstanding the crash of 2008 and subsequent recession. Given that distributions from trusts are factored back into a 10-year calculation it seems likely that HMRC are in for a stream of revenue from such trusts this year.
Some background for you
The IHT regime for relevant property trusts imposes an IHT charge on every 10-year anniversary and when capital leaves a trust.
The calculation of the tax charge is complicated and HMRC has consulted on ways to simplify the calculation whilst protecting tax revenues. Unfortunately, it now appears there will not be any major simplification.
There is only a limited range of trusts that are not relevant property trusts.
If you do not file a return for your trust 10-year anniversary, or when an exit charge arises, the trustees will face a penalty.
Even if your trust does not have an IHT liability at the 10-year anniversary point you may still need to file a return within given deadlines.
From 6 April 2014 the filing deadline for returns of a 10-year anniversary charge and all exit charges became 6 months after the end of the month in which the charge arose.
Given that the new regime came into being on 22nd March 2006, it is possible that your trust may be facing a 10-year anniversary as early as 23rd September 2016.
Due to the complex nature of the 10 year calculations, trustees are advised to give thought to such a return sooner rather than later.
What can you do?
If you are a trustee and you require advice about an approaching 10-year anniversary contact us for advice.