In this section:
- Introduction to Inheritance Tax and trusts
- Trusts that do and don't pay Inheritance Tax
- Inheritance Tax on transfers into trust
- Inheritance Tax due on trust ten-year anniversaries
- Inheritance Tax on assets transferred out of trust
- Inheritance Tax and trusts following a death
- Completing form IHT100 Inheritance Tax Account
Introduction to Inheritance Tax and trusts
Trusts may incur an Inheritance Tax charge when assets are transferred into or out of them or when they reach a ten-year anniversary. This guide looks at the key principles that determine whether a trust needs to pay Inheritance Tax in these situations.
On this page:
- What is Inheritance Tax?
- Inheritance Tax and settled property
- What events trigger an Inheritance Tax charge?
- Property you pay Inheritance Tax on
- Property you don't pay Inheritance Tax on
- Declaring and paying Inheritance Tax on trusts
- Get professional help for your trust
- More useful information
What is Inheritance Tax?
Inheritance Tax is commonly understood as the tax paid on your estate when you die. However, it can also apply to your estate while you're alive, especially if you transfer some or all of it into a trust.
The basic principles behind Inheritance Tax and trusts are explored below, but it is important to remember that Inheritance Tax is only paid on the value of assets above the Inheritance Tax threshold (£312,000 in 2008-09).
Find out more about Inheritance Tax rates and thresholds
Inheritance Tax and settled property
The act of putting an asset into a trust is often known as 'making a settlement' or 'settling property'. For Inheritance Tax purposes, each item of settled property has its own separate identity.
This means, for example, that one item of settled property within a trust may be for the trustees to use at their discretion and therefore treated like a discretionary trust. Another item within the same trust may be set aside for a disabled person and treated like a trust for a disabled person. In this case, there will be different Inheritance Tax rules for each item of settled property.
Even though different items of settled property may receive different tax treatment, it is always the total value of all the settled property in a trust that is used to work out whether a trust exceeds the Inheritance Tax threshold and whether Inheritance Tax is due.
You can find out about the Inheritance Tax rules for different kinds of trust in the guide below.
Find out which trusts do and don't pay Inheritance Tax
What events trigger an Inheritance Tax charge?
From a trusts perspective, there are four main occasions when Inheritance Tax may apply to trusts:
- when assets are transferred - or settled - into a trust
- when a trust reaches a ten-year anniversary
- when settled property is transferred out of a trust or the trust comes to an end
- when someone dies and a trust is involved when sorting out their estate
Each of these situations is explored in more detail in the following guides.
Inheritance Tax on assets transferred into trust
Inheritance Tax on trust ten-year anniversaries
Inheritance Tax on assets transferred out of trust
Inheritance Tax and trusts following a death
Property you pay Inheritance Tax on
You have to pay Inheritance Tax on 'relevant property'. Relevant property covers all settled property in most kinds of trust. But property in the following types of trust doesn't count as 'relevant property':
- interest in possession trusts with assets that were put in before 22 March 2006
- an immediate post-death interest trust
- a transitional serial interest trust
- a disabled person's interest trust
- a trust for a bereaved minor
- an age 18 to 25 trust
You can find out about relevant property and relevant property trusts in the guide below.
Find out which trusts do and don't pay Inheritance Tax
Property you don't pay Inheritance Tax on
Inheritance Tax is not paid on 'excluded property' (although the value of the excluded property may be brought in to calculate the rate of tax on certain exit charges and ten-year anniversary charges). Types of excluded property can include:
- property situated outside the UK that is owned by trustees and was settled by someone who was permanently living outside the UK at the time of making the settlement
- government securities, known as FOTRA (free of tax to residents
abroad)
The rules governing excluded property can be complicated. For further technical guidance, you can use the HM Revenue & Customs (HMRC) online Inheritance Tax manual.
Find technical guidance on excluded property
Declaring and paying Inheritance Tax on trusts
There are two main forms you will need to use to declare and pay Inheritance Tax for your trust:
- IHT400 Inheritance Tax Account - used to show what Inheritance Tax is due when someone has died
- IHT100 Inheritance Tax Account - used to show what Inheritance Tax is due from 'lifetime events', for example a transfer into or out of a trust, or a ten-year charge on a trust
Get help with forms for probate and Inheritance Tax
Find out more about completing form IHT100 Inheritance Tax Account
Find out about paying Inheritance Tax
Get professional help for your trust
Understanding tax on trusts can be difficult. You might like to get professional advice from a tax adviser or solicitor to help you. However, if you do, remember that the trustees are still all legally responsible for ensuring that the trust's tax affairs are carried out satisfactorily. You'll find some links below to professional organisations - though not all professionals are registered with them.
Find a solicitor on the Law Society of England and Wales website
Find a solicitor on the Law Society of Northern Ireland website
Find a solicitor on the Law Society of Scotland website
Get help from the Society of Trust and Estate Practitioners - STEP website
In order for HMRC to be able to communicate with your agent or professional representative on trust Income Tax and Capital Gains Tax matters, you need to fill out form 64-8.
Find out more about completing form 64-8
If you want HMRC to communicate with your agent or professional representative on Inheritance Tax issues that occur during the lifetime of your trust, you must enter the relevant contact details on form IHT100.
Find form IHT400 and guidance notes
Find out more about completing form IHT100 Inheritance Tax Account
More useful information
Introduction to Inheritance Tax
