S81 IHTA 1984 10 year anniversary charges

Trusts Discussion
1

Hi

I have a question regarding the practicalities of applying s81 IHTA 1984 for relevant property trusts that have transferred property between each other.
I know that for 10 year charge purposes, the asset is deemed to still be within the original settlement but does that mean that the original settlement still has the responsibility to report and pay the tax liability on an asset it doesn’t own? Say if the original settlement doesn’t have cash funds to pay the 10 year charge, what happens then? Can it claim reimbursement from the second settlement?

Unfortunately I haven’t been able to find any guidance on this so any pointers would be greatly appreciated.

Jo Hamilton
Tax Manager
Howard Worth Chartered Accountants

2

The trustees of the new settlement are responsible for the tax and reporting. It is simply a tax fiction for the purpose of calculating the charge.

Simon Northcott

3

The trustees of the recipient settlement are liable with respect to any ten year charge [IHTA 1984, s 201].

However, the ten year date is governed by the date of commencement of the transferor settlement.

S 81 is of relevance only for Part III purposes which does not extend to determining IHTv liability.

Malcolm Finney

4

Where property has been transferred into a trust, s.81 will apply only to the date of the periodic charge for the transferred property.

The periodic charge in relation to property settled directly into the recipient trust will still be 10 years (less a day) from the date that settlement was created.

Accordingly, the trustees of the recipient trust will have multiple periodic charges arising on different parts of their trust during any 10 year period.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

5

Thank you everyone, this is really helpful as HMRC guidance is very thin on the ground.

Jo Hamilton
Tax Manager
Howard Worth Chartered Accountants

6

" Where property has been transferred [from one trust] into [another] trust, s.81 will apply only to the date of the periodic charge for the transferred property".

Paul, is this really so? s81 states that the property in the new trust “shall for the purposes of this Chapter (Chapter III) be treated as remaining comprised in the first settlement”

Chapter III IHTA contains all charging etc provisions relating to relevant property trusts, not just the date of 10 year charges.

s80 (initial interest of spouse) is limited simply to the dates of 10 year charges, but no s81.

Therefore, it is for example, the original settlor’s cumulative total that applies when calculating 10 year and exit charges.

Simon Northcott

7

Paul, will no doubt respond.

However, I think it’s very clear that s 81 has effect, as subsection (1) thereof states, for the whole of Chapter III Pt III.

Thus, by way of example as you state, it is the original settlor’s cumulative total which is relevant in calculating 10 year and exit charges re the recipient trust albeit based on the date of commencement of the original settlement.

Malcolm Finney