We have an 18 to 25 trust, covering four children. Two of the four have are over 18, and the trustees want to make a part payment to one of them. We have to calculate the exit charge.
The examples I can find all relate to a single beneficiary, not the multiple beneficiaries we have here. This cannot be an unusual situation (although I have not come across it before) so I hope someone can answer this, or point me towards an answer.
I understand that, in calculating the charge, we are looking at the value at the date of death, not the current value.
However, in calculating the exit charge, are we bringing into account
a. only the 1/4 share of the beneficiary receiving the payment, or
b. that share plus the share of the other child who has reached 18, as these are the parts of the fund now being treated as relevant property, or
c. the whole trust fund, including the shares of the two children who have not reached 18?
I believe you calculate the effective rate using the value of the whole trust at the time it became relevant property.
Then apply this effective rate to the amount being appointed to the beneficiary, apportioning the tax for the number of whole quarters from that date the beneficiary attained 18 yrs to the date of the appointment (n/40 where n is the number of quarters from 18 yrs to the appointment)
You are certainly right that the exit charge has to be calculated on the basis of the date of death value. As I read IHTA s71F(9) you have to bring in the other shares which are within the 18-25 rules, again at date of death value, but I wouldn’t bet my house on the fact.
My only practical experience of an exit charge in a similar case seemed to show that HMRC did not understand these rules. And, of course, IHT100 and its sub-forms, which have, shamefully, never been updated to take account of the 2006 changes, let alone more recent changes, make no provision for them. As far as I am aware 18 to 25 trusts were ignored in the drawn out review of the relevant property rules a few years ago.
I suspect that, in practice, significant charges under the rules are fairly rare, because, where valuable assets are involved, most settlors and trustees will have arranged not to give young adults outright interests at 25.