Exit charges when trust property was initially relieved


(Tobias Gleed-Owen) #1

If A settles assets qualifying for 100% APR/BPR in a relevant property trust, and relief is lost following a sale by trustees say 5 years later, and cash proceeds of sale are then distributed to beneficiaries, will the exit charge be nil since it is based on the (relieved) value at the time the assets entered the trust, or is the exit charge based on the (unrelieved) value at the time the assets entered the trust in which case there will likely be a tax charge? (Assume the settlor survived the 7 years so no claw-back need be considered.)

Reading Dymonds, I see the writer believes the legislation is unclear on the point but there appears to be a difference between exits in the first 10 years (calculated according to the unrelieved value of assets at the time of entry) and exits following a 10 year anniversary (calculated according to a fraction of the rate of tax at the last anniversary).

Does the view given by Dymonds accord with members’ practice and experience with HMRC?

Tobias Gleed-Owen
Hewitsons LLP


(malcolm.gunn) #2

I am surprised Dymonds believes the legislation to be unclear. The exit charges in the first ten years are based on the initial value of the settled property. Business property relief does not affect the value of the property, but it treats the value transferred
as reduced.

Malcolm Gunn

M B Gunn & Co Ltd


(Paul Saunders) #3

I am uncertain as to why there is uncertainty.

s.68(5)(a) IHTA 1984 refers to the applicable value for calculating an exit charge within the first 10 years as being: “the value, immediately after the settlement commenced, of the relevant property then comprised in it”.

Regardlless of the relief claimed by the settlor, immediately after the settlement has commenced the trustees will not have held the trust property for the requisite time to enable relief under either APR or BPR to be claimed. Accordingly, unless particularly unusual circumstances apply, any exit charge within the first 10 years is calculated on the basis that relief under neither APR nor BPR is available to the trustees to reduce any potential exit charge.

My experience is that HMRC does recognise the difference bewteen exits within the first 10 years, and those made subsequently.

Paul Saunders