When a trust is created, it’s natural to focus on the immediate tax implications or what happens when assets are eventually distributed to beneficiaries.

However, one important inheritance tax (IHT) rule is often overlooked: the 10-year anniversary charge.

Many trusts can sit quietly for years. There may be no changes to the trustees, no distributions to beneficiaries and very little day-to-day administration. It can therefore come as a surprise when the trust reaches its tenth anniversary and the trustees discover there are inheritance tax reporting obligations, and potentially tax to pay.

What is the 10-year anniversary charge?

Most discretionary trusts and other relevant property trusts are subject to an inheritance tax charge every ten years. This is known as the periodic charge, or 10-year anniversary charge.

The charge is calculated based on the value of the trust assets immediately before the tenth anniversary.

Although the maximum effective rate is generally up to 6%, calculating the actual liability is rarely straightforward.

A number of factors can affect the amount payable, including:

  • Previous chargeable lifetime transfers
  • Assets added to the trust after it was created
  • The available nil-rate band
  • Any available reliefs or exemptions
  • The trust’s historic tax position

Every trust is different, which is why it’s important to review the position well before the anniversary date.

An example

Imagine a discretionary trust created in 2016 that now holds investments worth £520,000.

The trustees may assume there is nothing to do because no money has been distributed to the beneficiaries. However, when the trust reaches its tenth anniversary, there may be an inheritance tax liability together with reporting requirements to HMRC.

Without advance planning, trustees can find themselves facing unexpected deadlines, valuations and tax calculations.

Why regular trust reviews matter

A trust should never be viewed as something that can simply be left untouched for decades.

Keeping trust records up to date and reviewing the trust regularly can make the administration much easier when important tax events arise.

Trustees should consider:

  • Holding regular trustee meetings.
  • Keeping accurate records of decisions made.
  • Obtaining up-to-date valuations of trust assets.
  • Reviewing whether any additions have been made to the trust.
  • Taking professional advice before significant anniversaries.

This is particularly important where a trust owns property. Rising property values can significantly increase the value of trust assets over time, meaning an inheritance tax charge may arise at the 10-year anniversary, even where none was anticipated when the trust was first established.

We regularly advise trustees of trusts established for wealth protection or probate preservation purposes. In many cases, the trust has remained largely untouched for years while property values have increased considerably. Trustees may not realise that the trust’s 10-year anniversary could trigger inheritance tax reporting requirements and, potentially, an inheritance tax liability, making it essential to review the trust well before the anniversary date.

Don’t get caught out

The 10-year anniversary charge isn’t intended to catch trustees by surprise, but it is one of those rules that is easy to overlook until the deadline is fast approaching.

Planning ahead gives trustees time to obtain up-to-date valuations, gather historic trust information and ensure any inheritance tax reporting requirements are met accurately and on time.

A simple diary reminder today could prevent unnecessary stress and unexpected tax issues in the future.

How Gepp Solicitors can help

Our experienced Private Client team advises trustees, families and individuals on all aspects of trust administration, inheritance tax and estate planning.

Whether you are approaching a trust’s 10-year anniversary, need help calculating a potential inheritance tax liability, or simply want reassurance that your trust is being managed correctly, we can provide clear, practical advice tailored to your circumstances.

We can assist with:

  • Reviewing discretionary and relevant property trusts.
  • Advising on 10-year anniversary and exit charges.
  • Preparing inheritance tax calculations and HMRC reporting.
  • Trust administration and trustee duties.
  • Ongoing inheritance tax and estate planning.

By seeking advice early, trustees can avoid unexpected tax liabilities and ensure they meet their legal responsibilities with confidence.

Speak to our Trusts and Tax specialists

Whether you’re acting as a trustee, approaching a trust’s 10-year anniversary or considering setting up a trust, our experienced Trust Solicitors can provide clear, practical advice tailored to your circumstances.

Call: 01245 228125

Email: privateclientenq@gepp.co.uk

Trust Solicitors | Setting Up & Managing Trusts | Gepp SolicitorsTrusts – Gepp Solicitors