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Readers' forum: Applicable rate?

21 August 2018
Issue: 4661 / Categories: Forum & Feedback

Calculating the inheritance tax exit charge on a discretionary trust.

My clients are the trustees of a discretionary trust created on the death of the settlor in 2004. The settlor/testator left half of his estate (valued at £750 000) to his spouse in an interest in possession trust and the other half for the benefit of his wider family in a discretionary trust.

A ten-year charge was calculated and paid in 2014 under the rules prevailing before 18 November 2015. That is to say the valuation of the notional transfer as postulated in IHTA 1984 s 66(3) and (4) includes the value of the interest in possession trust. Therefore the value of non-relevant property contributed to the calculation of the rate of tax that applied at the last ten-year anniversary.

The trustees of the discretionary trust now wish to make a substantial capital distribution to two of the beneficiaries. We are not sure how to...

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