The first 10 year anniversary of a discretionary trust (relevant property) is approaching. The chargeable value is about £125k. No exits to date. This seems fairly clean and it’s a simple charge to calculate.
I’ve been asked if appointing / assigning capital to another trust before the anniversary would have the effect of brining the 10 year value below the charge threshold?
Seems to me that this is not going to be possible (I have assumed that the trust in force has the power to transfer to other trusts) because I feel like the assignment would simply be added back in at 10 years as an exit. But I’ll admit that I don’t have the answer and I’d appreciate any comments of the community.
Thank you Malcolm. Can you please clarify…if capital is appointed out and no exit charge is due (as would be the case as I understand it for any appointment made in the first 10 years where there was no entry charge?) does s66(5)(b) apply? ie does such an appointment get ignored in the periodic charge calculation?
If you have an exit in the first ten years and the initial value of the trust is below the NRB then you can release the assets and not have a liability. The calculation of the rate of tax is based on the initial value.
At the ten year anniversary the tax is based on the revalued amount of the trust fund.
So if the initial value was say £300k and the value now is £500k and you are 9½ years in, an exit now of all the fund will likely have no tax liability but if you go through the 10yr charge tax will be payable.
If you had an exit of say £400k leaving £100k in, the £400k tax would look back to the initial value and likely be free of tax. The 10yr charge would bring in the Exit of £400k to calculate the appropriate rate of tax but that rate would only bite on the £100k left in the trust so a saving can be made on my understanding of how it works
If the settlor made no CLT in the 7 years ending with the creation of the settlement then the tax would probably be ni. Also the trustees may not be required to make an account to HMRC. The sum of the special cumulation and the notional transfer seem to be within 80% of the NRB.