Is it necessary to prepare form IHT100 for a ten yearly charge if the value of the trust is below the nil rate band. The exemption for values of less than 80% of the current nil rate band found in IHTM10652 refers to “a gift or transfer of value … made by an individual”. In this case there is nether a gift nor a transfer of value nor is it made by an individual so presumbably this does not apply to ten yearly charges.
I can’t immediately find any other exemption.
TIA.
IHTM 06124 may be of assistance;
Where a ten year charge has arisen and the settlement passes the general conditions (IHTM06123), it will qualify as an excepted settlement where the value of the notional aggregate chargeable transfer (IHTM42082) specified in IHTA84/S66(3) does not exceed 80% of the nil rate band.
See SI 2008/606 as amended in particular Reg 4(1), (3) and (4).
Malcolm Finney
Or you could consult the Regulations SI 2008/606 Regs 4(1)-(4) . There are alternative conditions in 4(2) and (3) to be met
Jack Harper
Many thanks Malcolm for your prompt reply
Many thanks Jack for your prompt reply
Many thanks Gerry for your prompt reply
I have a case where the deceased left a NRB DT in her Will. When she died theNRB was £263000 and the trust comprises a combination of an IOU and a charge over the home. At the first 10 year anniversary I advised the trustees that as the trust value of £263000 exceeded 80% of the Then NRB of £325000 by £3000, an IHT 100 needed to be submitted even though no tax liability could arise. They, however decided to take no action. The next 10 year anniversary comes up in 2015 and as the Trust value will be unchanged, I expect the trustees will take the same view. I presume there is nothing more I can do other repeat what I said. At our last meeting. Is HMRC likely to charge a fine? I suppose they could only do so if they became aware of the matter and that’s not likely unless the trustees lodge an account.
Patrick Moroney
Perhaps the Chancellor has come to the rescue. The Red Book includes the following;
4.35 Simplification for trusts and estates – To simplify administration, the government will formalise and extend an existing income tax concession for low income trusts and estates and provide further changes to make calculations and reporting more straightforward. HMRC also intend to make changes to inheritance tax regulations to remove non-taxpaying trusts from reporting requirements.
I wouldn’t hold my breath!!
In any event, any changes to reporting re IHT won’t be retrospective to 2015 (do you mean 2015 or 2025 Patrick?).
Don’t think announcement Gerry refers to appeared other than in Red Book so many people I suspect will have missed it unless I’m wrong.
Malcolm Finney
Sorry I meant to say 2025 for the next 10 year anniversary.
Patrick Moroney
Re Patrick’s posting, in situations where a professional adviser is aware that their client is not complying with their obligations to HMRC, if the professional’s professional body has signed up to the PCRT can the professional just disregard that knowledge?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
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I’ve always thought that the 80% rule was to allow HMRC to challenge valuations, so it would seem fairly easy to me to exclude trusts from reporting if the value was between 80% and 100% of the nil rate band, but they consisted of solely cash and quoted investments.
And I doubt they’d exclude all taxpaying trusts from reporting because some trusts don’t pay tax because of AR or BR, both of which have to be claimed.
I had numerous clients who had overlooked the 10 year anniversary because they were no longer, and had not been for some time past, in touch with their original professional trust adviser and, as the trust had no income or gains, had had no regular contact with another one. I am glad they were all able to accept my advice to regularise the situation. Had they not I would have ceased acting which I did where my advice was sought by those with poor fiscal hygiene who declined to make a voluntary disclosure to HMRC.
Jack Harper
Do you mind explaining the “value of the notional aggregate chargeable transfer.” IHTM42082 does not have any info on the page anymore?
The law is contained in s66 IHTA 1984. The wording is formidable and sadly pre-dates the use of examples, ideal here.
IHTM42081-91 are intended to assist but again more examples would be useful.
The idea is to tax the value of the property in an RPT at each 10 year interval. The maximum rate is 6% but the law allows some degree of reduction by reference to the nil rate band of tax. It presumes that a person with certain characteristics has transferred the settled property.
The principal feature is the actual cumulation of the real settlor in the 7 years prior to making the settlement. The “aggregate” part comes in at 10 year anniversaries after the first. You add to that cumulation any amounts charged on distributions by the trustee during the previous 10 years. The idea is to prevent assets being distributed between 10 year anniversaries (charged at perhaps a low or nil rate because tied to the rate applicable on the most recent 10 year anniversary) and so reduce the tax charged on the next anniversary (disproportionately, or so the those who dreamt all this up apparently thought).
So take an RPT fund worth £300,000 at the first 10 year anniversary. In isolation this would be below the NRB. If the actual settlor had made no chargeable transfers in the 7 years before the RPT was settled, then a full NRB will apply to the settled property. But if he had made transfers of £100,000 the NRB of the trust would be reduced to £225,000 and £75,000 would be taxed at 6% = £45000. A tax rate of 1.5% (4500/300000 x100)
At the second 10 Year anniversary the value of the RPT assets is now £400,000. You repeat the process. But suppose the increase in value was partly masked by a distribution of £60,000 during the prior 10 years. That will have been taxed at the time at 1.5% with a reduction for incomplete quarters. But the settlor is now treated at the next 10 year anniversary as having had an actual cumulation (of nil or £100,000 as the case may be) plus the £60,000 distributed. That is the aggregate notional transfer and the rate of tax on the £400,000 is bigger than if no interim distribution had been made.
If the settlor’s actual cumulation was nil it would be treated as £60,000 so the available NRB would be only £265,000 leaving £135,000 taxed at 6%.
If a settlor with a nil cumulation settled assets that were worth £325,000 10 years later, the charge then would be nil and any value distributed in the next 10 years would also be taxed at nil. But what if the remaining value of the settled property at the next 10 year anniversary was still £325,000 due to investment growth. £750,000 of value would have escaped tax. Counting the value of the interim distributions into the notional aggregate cumulation reduces that advantage.
Regrettably the draftsman, who was presumably a sado-masochist, has factored in all kinds of other adjustments involving related settlements, same day additions and assets not in the RPT regime for all of the 10 years. Given the low rate of tax (while stocks last!) one asks whether such complexity is appropriate. But then one recalls the paranoia that underpins the CGT annual exemption for multiple trusts created by the same settlor in Sch 1C TCGA and concludes that the pathology is hereditary.
Jack Harper