18-25 Trust tax on capital distributions

We have been asked to advise the Trustees of an 18-25 trust on exit charges resulting from a number of payments from capital that have been made to the beneficiary since they turned 18. The amount that originally passed to the trust exceeded the NRB and the trust itself will come to an end when the beneficiary reaches 21 in two years time.

The payments range from £30.00 to £4500.00 and we wonder whether it is necessary to produce an IHT100 for each complete year after the beneficiaries’ 18th birthday, so the correct exit charge can be paid, or whether there is an amount under which HMRC do not require the submission of the IHT100?

Nick Sewell
Bevirs Law

Technically it is necessary to complete an IHT100 for each capital distribution, since the date of the distribution is a field that needs to be completed. Also, both the return needs to be submitted and the tax paid within 6 months of the end of the month in which the capital distribution arose. There is a GBP100 late filing penalty, which (in the current climate) HMRC are very keen to impose. The only difference for an 18-25 trust exit charge, I believe, is the method of calculation.

A few years ago I did have a case (not 18-25) where monthly capital distributions of less than GBP50 each time had been made, and were in any case being reported late on the occasion of the 10 year anniversary charge, where I submitted one IHT100 together with a covering letter and a supporting schedule detailing the tax being calculated on each distribution. This was accepted by HMRC.

Maxine Higgins
Citroen Wells

Sadly this is another silly aspect of the system for exit charges on both 18-25 and relevant property trusts, exacerbated a few years ago by the shortened period within which to submit the IHT return after the exit.

It is still beyond me why HMRC cannot cope with exit charges on continuing trusts being reported as part of the trustees’ annual return, just as capital gains are, with the time limits for reporting and payment being set accordingly.

Anthony Nixon
Irwin Mitchell Private Wealth