What Is a 10-Year Tax Charge?

Note: The following article is part of our Complimentary Articles Series, designed to provide additional insights and detailed information on specific topics within estate planning.

In conjunction with the following article, we recommend you review the following pillar articles to understand inheritance taxes and Trusts comprehensively.

• What is Inheritance Tax (IHT)?
• When Does IHT Need to Be Paid?
• What is a Trust?
• Why Should I Give Assets into a Trust During My Lifetime?
• What Are Entry, Exit, and Periodic Charges in Trusts?

Caution: While this article clarifies some common misconceptions about tax compliance in your estate planning, the content serves as a guideline only. When making tax-related decisions, always consult a tax professional.

INTRODUCTION

Understanding the tax implications of Entry, Exit, and Periodic Charges is fundamental in the Trust aspects of estate planning since these charges are related to the movement of assets in and out of Trusts.

In addition, these charges belong to the Inheritance Tax (IHT) category, as they represent the primary points where Trust asset values are assessed for IHT purposes.

For a broader understanding of Trust-related charges, you may wish to consult our related article "What Are Entry, Exit, and Periodic Charges in Trusts?" which provides a broader context.

THE 10-YEAR TAX CHARGE (OR PERIODIC CHARGE)

The 10-Year Charge, also known as the Periodic Charge, is assessed on certain types of Trusts, such as Discretionary trusts, every 10 years on the anniversary of the Trust's establishment.

• Basis of Calculation: The 10-year Tax Charge (or Periodic Charge) is based on the value of the Trust's assets exceeding the available Nil-Rate Band (NRB) at the 10th anniversary of the Trust's establishment.

• Rate: The Charge is 30% of the lifetime Inheritance Tax (IHT) rate. With the lifetime IHT rate set at 20%, the Periodic Charge effectively becomes 20% * 30%, which equals 6%.

• Differentiation: Unlike Entry and Exit Charges, which are related to the transfer of assets into and out of the Trust, the 10-year Charge is a recurring assessment every 10 years and an essential part of long-term Trust administration and valuation of the Trust's assets over time.

WHEN IN DOUBT, CONSULT A TAX PROFESSIONAL

Trust-related tax issues can be complex, requiring careful planning and timing, especially within the first 10 years. This is especially critical for assets with fluctuating values over time or if you're thinking of planning asset distribution around a 10th tax anniversary.

If your Estate is complex or you're in doubt about any tax aspect, we recommend you seek guidance from a tax professional to ensure full compliance and err on the side of caution.

Need to know more?

You can also speak to a qualified estate planning company for a free initial consultation to discuss your options. Since we have the expertise to assess your Estate and understand your unique requirements, we can suggest appropriate lawful approaches for tax planning and estate administration, putting you in contact with our legal and tax experts where applicable.

Book a callback, and we'd be happy to arrange a no-cost, no-obligation discussion with you to lay out the options available.

Alternatively, call us on 01233 659 796.

Or reach out to us here.