| Rate |
| Values required |
| Calculate |
| Convert to rate |
| Assessing |
| Settlements made before 27 March 1974 |
Rate
Purely for calculating the rate of tax, the value of the
property subject to the exit charge is not relevant. Only the
historic values (those at the date of set-up or addition) of the
trust itself are considered.
The rate calculation is based on lifetime rates (half death
rate), even if the trust was set up under the will of the settlor.
The rate of tax payable is then 30% of those rates applicable to a
hypothetical chargeable transfer.
Values required
The hypothetical transfer is made up of the total of
These historic values are the figures before any business or
agricultural reliefs were given. (
IHTM42165)
Add
to
This is the aggregate chargeable transfer.
Calculate
| (Aggregate chargeable transfers – IHT threshold) | x 20% lifetime tax | = A tax minus | |||
| (Settlor’s cumulative total – IHT threshold) | x 20% lifetime tax | = B tax | |||
| Total tax chargeable at lifetime rate | = C tax | ||||
Convert to rate
|
C tax | x 100 | = effective rate% | |
| Assumed chargeable transfer | |||
| Effective rate% | x 3 | = settlement rate % | |
| 10 | |||
Then apply a reduction to reflect the number of quarters that the transferred property has been relevant property. ( IHTM42116)
Mr J settles £290,000 on discretionary trusts on 5 June
1999. Before the creation of the settlement his chargeable
transfers amounted to £90,000. There is no added property and
no related settlement.
The trust has risen in value to £400,000 and the
entirety is distributed to beneficiaries on 1 February 2006.
| Hypothetical chargeable transfer | £290,000 | + | ||||
| Cumulate with the previous lifetime transfers | £90,000 | |||||
| Aggregate chargeable transfer (ACT) | £380,000 | |||||
| ‘lifetime’ tax on ACT: | ||||||
| 20 % x
[£380,000 – £275,000]
(IHT threshold at 1 February 06) | £21,000 | |||||
| ‘lifetime’ tax on lifetime transfers: | - | |||||
| £90,000 transfers are below threshold, so no tax | £0 | |||||
| £21,000 | ||||||
| Effective rate: | ||||||
| £21,000 | x 100 = | 7.241% | ||||
| £290,000 | ||||||
| Settlement rate = 7.241% | x 3 | = 2.172% | ||||
|
| 10 | |||||
| Chargeable transfer £400,000 x 2.172% | = £8,688 | - | ||||
| Reduction:
relief as property held for 26 quarters,
therefore not relevant property for 14. (see IHTM42116) | £3,040 | |||||
| £5,648 | IHT to pay | |||||
Assessing
See page IHTM42116 for an explanation of the reduction to apply to reflect the number of quarters the property has been relevant property, and for screenshots of this example using both Compass and the manual assessing template.
Settlements made before 27 March 1974
See guidance at IHTM42130
