Key facts
- The 10-year (or “periodic”) charge applies to relevant property trusts every 10 years.
- The maximum effective rate is 6% of the trust’s value (30% of the lifetime rate of 20%).
- The charge is based on the market value of the trust assets on the anniversary date.
- The nil-rate band (£325,000 for 2025/26) is deducted before the charge is calculated.
- If the settlor created multiple trusts after 6 June 2014, the NRB is divided equally between them.
What Is the 10-Year Charge?
The 10-year anniversary charge (also called the “periodic charge” or “principal charge”) is an IHT charge levied on relevant property trusts every 10 years from the date the trust was created. It ensures that assets held in trust do not escape IHT indefinitely.[1]
The charge is based on the market value of the trust’s assets on the anniversary date, and the maximum effective rate is 6% of the trust’s value.
Which Trusts Are Affected?
The 10-year charge applies to relevant property trusts, including:[2]
- Discretionary trusts
- Accumulation trusts
- Post-March 2006 interest in possession trusts (unless a qualifying type)
- Mixed trusts (on the relevant property elements)
It does not apply to bare trusts, pre-March 2006 qualifying interest in possession trusts, immediate post-death interests (IPDIs), or disabled person’s trusts.
How the Charge Is Calculated
The calculation involves several steps:[3]
- Determine the market value of the relevant property on the 10-year anniversary
- Add the value of any related settlements and cumulative CLTs made by the settlor in the 7 years before creating the trust
- Apply the nil-rate band (£325,000 for 2025/26) to find the excess
- Calculate the effective rate by applying 20% to the excess, then dividing by the total value
- Multiply the effective rate by 30% to arrive at the actual rate
- Apply the actual rate to the relevant property value
Example: A discretionary trust has assets worth £500,000 at its 10-year anniversary. The settlor made no other CLTs. Excess above NRB: £500,000 − £325,000 = £175,000. Notional IHT at 20%: £35,000. Effective rate: £35,000 ÷ £500,000 = 7%. Actual rate: 7% × 30% = 2.1%. Tax: £500,000 × 2.1% = £10,500.
The 6% Maximum
The theoretical maximum effective rate is 6%. This would apply only if the entire trust value exceeds the NRB and no reliefs apply. In practice, the rate is usually well below 6% because:[2]
| Trust Value at 10-Year Anniversary | Approximate Effective Rate | Approximate Tax |
|---|---|---|
| £325,000 or less | 0% | £0 |
| £500,000 | 2.1% | £10,500 |
| £750,000 | 3.4% | £25,500 |
| £1,000,000 | 4.05% | £40,500 |
| £5,000,000+ | Approaching 6% | Variable |
Reliefs and Deductions
The following reliefs can reduce the 10-year charge:
- Business Property Relief — 50% or 100% relief on qualifying business assets (but capped at £1 million from April 2026)
- Agricultural Property Relief — 50% or 100% relief on qualifying agricultural property (also capped from April 2026)
- Liabilities — trust debts reduce the taxable value
- Excluded property — certain overseas assets of non-domiciled settlors
Planning point: Trustees should consider making distributions before a 10-year anniversary to reduce the trust value and therefore the periodic charge. However, an exit charge may apply to the distribution itself, so the numbers should be compared carefully.
Multiple Trusts and the NRB
If the settlor created multiple relevant property trusts on or after 6 June 2014, the nil-rate band is divided equally between them for charge calculations. For example, if a settlor created two trusts, each trust can only use £162,500 of the NRB (not the full £325,000).[2]
Frequently Asked Questions
What is the 10-year anniversary charge?
It is a periodic IHT charge levied on relevant property trusts (mainly discretionary trusts) every 10 years from the date the trust was created. It ensures trust assets cannot remain outside the IHT net indefinitely. The maximum effective rate is 6%.
How is the 6% rate calculated?
The rate is 30% of the “effective rate” — which is the lifetime rate (20%) applied to the trust’s value above the NRB, then expressed as a percentage of the total trust value. The 30% factor ensures the 10-year charge is broadly equivalent to what would have been charged if the trust assets had been given away outright.
Can the charge be less than 6%?
Yes, often significantly less. The 6% is a theoretical maximum. In practice, the rate is usually lower because the nil-rate band covers some or all of the trust value, and various reliefs (BPR, APR) may apply. Trusts worth less than £325,000 pay no 10-year charge at all.
What happens if property is added to the trust?
Assets added between anniversaries (“additions”) are included in the trust value at the next 10-year anniversary. If the addition was itself a CLT, it is factored into the cumulative total when calculating the effective rate.
Further Reading
- Trusts and Inheritance Tax — overview of trust types and IHT
- IHT on Trust Creation — the initial entry charge
- Exit Charges on Trusts — charges when capital is distributed
- Using Trusts for IHT Planning — practical trust planning strategies
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