Excepted settlements

(Note: all following statutory references are to the Inheritance Tax Act 1984.)
  1. We propose to introduce new regulations that will excuse trustees from delivering an account in respect of a chargeable event where there is no a liability to tax, provided the trust meets a number of conditions. The conditions we propose are that:
  • the settlement must have been created on or after 27th March 1974,
  • there must be no related settlements (as defined in s.62),
  • the settlor must have been domiciled in the UK at the time the settlement was created and throughout the existence of the settlement,
  • the trustees of the settlement must have been resident in the UK throughout the existence of the settlement,
  • a hypothetical value, defined in the regulations, must be below a certain cash limit, and
  • the chargeable event must arise under s.64 or s.65 or under s.71E but only where the calculation is under s.71F.
  1. The hypothetical value will be slightly different depending upon the nature of the charge and in all cases will be the value of the assets concerned before the deduction of any available liabilities, exemptions of reliefs. We propose that this will be:

a. where the rate of tax is calculated under s.66 (ten-yearly anniversary (TYA)) the aggregate of:

  • the value, at the date of charge, of all relevant property in the settlement,
  • the value, at the date it became comprised in the settlement, of any non-relevant property,
  • the aggregate value transferred by all the chargeable transfers made by the settlor in the 7 years prior to creating the settlement (subject to an adjustment should the settler make any additions to the settlement), and
  • the aggregate chargeable value of property on which an exit charge was imposed in the ten years before the anniversary in question (but if the exit charge(s) themselves fall under these regulations so that the trustees are excused the need to deliver an account, the chargeable value of the property shall be replaced with the value before deduction of any available liabilities, exemptions and reliefs).

b. where the rate of tax is calculated under s.68 (exit charge before first TYA) the aggregate of:

  • the value, at the date it became comprised in the settlement, of all the property that became comprised in the settlement (whether at commencement or later), and
  • the aggregate value transferred by all the chargeable transfers made by the settlor in the 7 years prior to creating the settlement.

c. where a rate of tax is calculated under s.71E (age 18-25 trust) the aggregate of:

  • the value, at the date it became comprised in the settlement, of all the property that became comprised in the settlement (whether at commencement or later), and
  • the aggregate value transferred by all the chargeable transfers made by the settlor in the 7 years prior to creating the settlement.
  1. Where an exit charge arises after a TYA (rate of tax calculated under s.69) it is the circumstances that prevailed at the last TYA charge that are relevant. We propose that trustees are excused the need to deliver an account where:
  • the last TYA charge itself met the conditions within the regulations,
  • there is and has been since the last TYA, no non-relevant property in the settlement, and
  • there have been no additions to the settlement since the last TYA.
  1. As regards the cash limit, we propose to link it to the IHT threshold in the same way as for excepted transfers and terminations. We propose that the limit should be 30% below the IHT threshold, rounded up to the nearest £5,000.