Pre-2006 periodic charges

Trusts Discussion
1

I’m finding it difficult to find confirmation of the situation regarding discretionary trusts set up before 2006.

In summary, I have a client who set up a discretionary trust in 1987 (broad discretionary trust, definitely not an A&M). As I understand it, the trust has potentially been liable to anniversary charges in 1997, 2007, and 2017. The client’s previous advisers were of the firm view that an anniversary charge could only arise after 2006. I thought the FA2006 simply brought certain trusts within the already operational relevant property taxation system, and that a broad discretionary trust was already subject to that system?

Can anybody confirm this for me?

Many thanks

Marc Thomas
Port Worth Law

2

Confirmed - If trust definitely discretionary then potential IHT 10 year charges will have arisen on every 10th anniversary of date trust commenced.

Are HMRC aware of existence of trust?

Presumably you have or will check to make sure no capital distributions have been made.

Andrew M Mortimer

3

Assuming it was a relevant property trust pre 2006, then 10 year charges will have applied prior to that, unless it was a disabled trust or A & M

Simon Northcott

4

Thank you Andrew and Simon, much appreciated.

Do you happen to know when the relevant property regime was introduced? PLC and Lexis don’t appear to know.

The trust is a standard discretionary trust. The value of the trust assets were within the NRB in 1987. Client was told at the time that there were no tax implications and he hasn’t considered it again until recently. Trust assets are now worth upwards of £800k, and their value most likely exceeded the nil rate band as it was at the time in the late 90s. (Sole settlor, by the way).

Thanks again,

Marc Thomas
Port Worth Law

5

I believe it applies to all discretionary trusts (other than those specifically excluded) coming in to effect after 26 March 1974, with the charge being imposed by Schedule 5, para 12 (or relieved by the further provisions within Schedule 5).

Paul Saunders

6

The legislative references are to Finance Act 1975, but the relevant property regime applies to trusts set up before 27 March 1974, though the calculations are slightly modified.

Mark Woolley

Price Bailey

7

It also includes pre 27 March 1974 Settlements but the calculation is slightly amended (IHTM42130). This also says that no TYA charge applies before 1 April 1983.
Nigel Scase
Greene & Greene