Relevant Property Trust proportionate charge

Trust assets qualify for BPR on the 10 year anniversary. Those assets are sold and the proceeds distributed, do members agree the loss of BPR does not affect the normal rule, that the rate on the exit is based on the 10 year rate with the benefit of BPR- so if it was nil (because of BPR), there is no tax to pay on the exit?

Also, if it was a joint settlor (husband and wife), the assets are divided equally between 2 separate settlements, each with a nil rate band, for the purpose of calculating iht charges in the trust?

Simon Northcott

The points made are both correct. The rate of tax between anniversaries is the same as that paid on the most recent anniversary, save that if there was a reduction in the charge for property which was not relevant property throughout the prior ten year period that reduction is not brought into account for subsequent exit charges. But the relief for BPR is not adjusted in any way.

Malcolm Gunn

M B Gunn & Co Ltd

I agree with Malcolm Gunn’s view.

Regarding joint settlors IHTA 1984 s. 44(2) covers the point.

The exit charge post an anniversary is based on the effective rate charged at the previous anniversary. The rate applicable at the previous anniversary takes into account any BPR which may reduce that rate to nil because s64(1) refers to the “value of the property …. at that time” and s104(1) states “the value transferred shall be treated as reduced………by 100%”.

Malcolm Finney

As both Malcolm Gun and Malcolm Finney have identified, there will be no adjustment to the BPR (or APR) for exit charges “between anniversaries”.

However, it should be noted that if an exit charge arises before the first 10 year anniversary, any BRP or APR applying when assets were settled is ignored. s.68(5) IHTA looks to the value of the assets settled “immediately after it became comprised in the settlement”, and so will not usually qualify for relief as the trustees will not then have held it for 2 years.

Paul Saunders