Inheritance Tax on assets transferred out of trust

Inheritance Tax may be due when assets leave a trust. This guide explains what constitutes a transfer and when you need to pay the exit charge. It also tells you what information you need to do the calculation yourself and how your Tax Office can help.

On this page:

The Inheritance Tax exit charge
What is a transfer out of trust?
Exceptions to the Inheritance Tax exit charge
Calculating the Inheritance Tax exit charge
Doing the exit charge calculation yourself
Getting HMRC to do the calculation for you
More useful links

The Inheritance Tax exit charge

Inheritance Tax is charged up to a maximum of 6 per cent on assets - or ‘property’ - that is transferred out of a trust. The exit charge, which is sometimes called the ‘proportionate charge’, applies to all transfers of ‘relevant property’. You’ll find a link to an explanation of what qualifies as relevant property below.

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What is a transfer out of trust?

A transfer out of trust can occur when:

the trust comes to an end
some of the assets within the trust are distributed to beneficiaries
a beneficiary becomes absolutely entitled to enjoy an asset
an asset becomes part of a ‘special trust’ (for example a charitable trust or trust for a disabled person) and therefore ceases to be ‘relevant property’
the trustees enter into a non-commercial transaction that reduces the value of the trust fund

You can read more about how Inheritance Tax applies to relevant property trusts in our guide below.

Trusts that do and don’t pay Inheritance Tax

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Exceptions to the Inheritance Tax exit charge

There are some occasions when there is no Inheritance Tax exit charge - these apply even where the trust is a ‘relevant property’ trust. For instance, it isn’t charged:

on payments by trustees of costs or expenses incurred on assets held as relevant property
on some payments of capital to the beneficiary where Income Tax will be due
when the asset is transferred out of the trust within three months of setting up a trust, or within three months following a ten-year anniversary
when the assets are ‘excluded property’ - foreign assets have this status if the settlor was domiciled abroad

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Calculating the Inheritance Tax exit charge

The calculations for the Inheritance Tax exit charge are complicated. You will need the following information before you can begin:

the value - before any reliefs - of all the assets transferred into the trust in question, valued at the date they were added
the value of all other transfers into other trusts made by the settlor on the same day as the trust in question was set up, valued at the date they were added
the value of all transfers chargeable to Inheritance Tax that the settlor made in the seven years before the trust in question was set up, valued at the date they were made

Once you have this information there will be a different calculation depending on whether:

the transfer out of the trust occurs during the first ten years of a trust’s life
the transfer out occurs after the first ten years
the trust is an ‘18 to 25 trust’

You can read more about how Inheritance Tax applies to 18 to 25 trusts in the guide below.

Find out about 18 to 25 trusts and how to calculate the exit charge

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Doing the exit charge calculation yourself

You will need to declare and pay most Inheritance Tax charges incurred by your trust using form IHT100 Inheritance Tax Account. If you want to do the calculations yourself, you need to enter your figures into Sections G and H of form IHT100.

HM Revenue & Customs (HMRC) publishes a calculation worksheet that includes guidance notes to help you work out how much Inheritance Tax you will need to pay on:

transfers into trust
transfers out of trust
trust ten-year anniversaries

To calculate the exit charge, you will need to use section B of form IHT100WS Inheritance Tax worksheet. You can get further help filling in this section of the worksheet with part B of the guide IHT113 ‘How to fill in form IHT100WS’.

Download form IHT100WS Inheritance Tax worksheet (PDF 210K)

Download form IHT113 ‘How to fill in form IHT100WS’ (PDF 160K)

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Getting HMRC to do the calculation for you

If you want HMRC to calculate the exit charge for you, fill in form IHT100 leaving sections G and H blank. You will need to ensure you return the form to the Inheritance Tax Office in Nottingham in good time for the calculation to be worked out - otherwise you may incur a penalty charge.

Please note, whether you do the calculation yourself or whether HMRC does it, you will still need to complete an event form 100c for every transfer out of trust - in addition to the main form IHT100.

Find out more about completing form IHT100 Inheritance Tax Account

Find out about paying Inheritance Tax

Contact the Inheritance Tax Office in Nottingham

Get form IHT100 Inheritance Tax Account

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