The inheritance tax 10-year rule requires trustees of most UK trusts to pay a periodic charge to HMRC on every tenth anniversary of the trust’s creation. The charge applies to the value of “relevant property” held in the trust, at a maximum effective rate of 6% on anything above the £325,000 nil rate band. Miss the six-month filing and payment deadline and interest starts running, so the timing and the numbers both need to be right.
How the Charge Works and When It Falls Due
Section 64 of the Inheritance Tax Act 1984 is the legal basis. Whenever settled property is held in a trust that falls within the relevant property rules, HMRC taxes the value of everything in the trust immediately before each tenth anniversary of the trust’s creation.
The clock starts on the day the trust was first set up, not on the date any particular asset was added. A trust created on 1 June 2010 has its first 10-year anniversary on 1 June 2020 and its second on 1 June 2030, even if further property was transferred in during 2018. That cycle is fixed and does not reset when trustees, beneficiaries, or the assets change.
The charge keeps recurring for as long as the trust holds relevant property. There is no age at which a trust drops out of the regime. A trust running for 60 years faces its seventh charge on the same basis as one approaching its first.
Which Trusts Fall Within the Rule
Most trust property counts as “relevant property” and is caught. Discretionary trusts, where trustees choose who gets income or capital and when, are the classic case. Accumulation trusts and most interest-in-possession trusts created on or after 22 March 2006 are also in.
The label covers settled assets broadly: cash, investments, land, business interests. The practical test is whether any beneficiary has an immediate and absolute right to the trust income. If no one does, the property is almost certainly relevant property, and the periodic charge applies.
Trusts and Property That Sit Outside the Rule
Several categories fall outside the relevant property regime entirely, so the 10-year charge does not apply:
- Interest-in-possession trusts where a named beneficiary had a right to the income before 22 March 2006 and that right has continued.
- Transitional serial interests created between 22 March 2006 and 5 October 2008.
- Property placed into an interest-in-possession trust by the terms of a will or the intestacy rules.
- Trusts for a beneficiary who meets the statutory definition of disability.
- Bereaved minor trusts for children who have lost a parent, where the specific conditions are met.
- Age 18-to-25 trusts, where the beneficiary becomes entitled to the assets between those ages.
Certain assets are also “excluded property” and sit outside the charge. UK government securities designated as free of tax for overseas residents are one example. Trust property situated outside the UK is excluded where the settlor was not a long-term UK resident at the time of the charge, for events on or after 6 April 2025.
How the Tax Is Calculated
The mechanics look complex, but the logic is simple: work out what the trust is worth, subtract what nil rate band is available, apply the lifetime rate, then scale it down for the 10-year cycle.
Start with the market value of all relevant property in the trust on the day before the anniversary. Deduct the available nil rate band, which for trusts sits at £325,000. That figure has been frozen since 2009, and HMRC has confirmed it will stay there until at least April 2030.
The excess above the nil rate band is taxed at the lifetime rate of 20% to produce a notional tax figure. Divide that notional figure by the total value of the trust to get an effective rate. Multiply the effective rate by 30% (the 3/10 fraction reflecting the 10-year cycle within the legislation’s 30-year framework). The result is the actual rate applied to the trust’s value.
Where no nil rate band is available at all, the arithmetic caps out at 6%: 20% × 30% = 6%. In practice, many trusts pay well below that because some nil rate band is usually still available.
What Reduces the Available Nil Rate Band
The full £325,000 is not always on the table. Trustees must account for:
- Chargeable lifetime transfers made by the settlor in the seven years before creating the trust, which eat into the band.
- Property in related trusts, meaning any other trusts the settlor created on the same day, which is aggregated for the rate calculation.
- Distributions of relevant property out of the trust since the last anniversary, or since the trust was created for the first charge.
Where the trust also holds property that has never been relevant property, for example assets initially held in an exempt interest-in-possession arrangement before becoming discretionary, that value still has to be brought into the rate calculation even though it is not directly charged.
Property Added Partway Through the Decade
Not every asset will have been in the trust for the full 10 years. Assets added mid-cycle are charged proportionally, based on the number of complete quarters they have been in the trust. A decade contains 40 quarters, so property held for 20 quarters bears half the calculated rate. That stops a late addition from being taxed as though it had been sheltered for a full decade.
Business and Agricultural Property Reliefs
Two reliefs can wipe out or heavily reduce the periodic charge. Business property relief reduces the taxable value of qualifying business assets in a trust, and agricultural property relief does the same for qualifying farmland and agricultural property. Where the reliefs apply in full, the value for the 10-year calculation can fall to zero.
What Changes from April 2026
The government announced significant reforms at the Autumn Budget 2024. From 6 April 2026, a combined allowance of £2.5 million applies across both reliefs within trusts. Property within that allowance keeps 100% relief. Anything qualifying above £2.5 million gets only 50% relief, so the excess is taxed at half its market value rather than being fully exempt.
Shares admitted to trading on recognised stock exchanges but designated as “not listed” (AIM-traded shares are the main example) drop from 100% to 50% relief in all cases, whatever the allowance. The same treatment applies to qualifying shares on foreign exchanges that are not recognised stock exchanges.
The practical effect for trustees is that the 10-year charge can bite from 2026 on property that would previously have paid nothing. A trust holding £4 million of qualifying business assets would have owed nothing under the old rules. From April 2026, the first £2.5 million remains fully relieved and the remaining £1.5 million receives 50% relief, bringing £750,000 into the periodic charge calculation.
Exit Charges Between Anniversaries
The 10-year anniversary is not the only chargeable moment. Under Section 65 of the Inheritance Tax Act 1984, a separate exit charge arises whenever relevant property leaves the trust in between anniversaries. It is triggered by capital distributions to beneficiaries, transfers of assets out of the settlement, or any action that reduces the value of the relevant property.
The exit charge rate is based on the rate established at the most recent 10-year anniversary, scaled down by the number of complete quarters that have passed since. For a trust that has not yet reached its first anniversary, the calculation uses a notional rate based on the settlor’s cumulative chargeable transfers at the date the trust was created. No exit charge applies if property leaves the trust in the same quarter as the trust’s creation or a 10-year anniversary, because the periodic charge already covers that point.
Filing and Payment
Trustees report the 10-year charge on Form IHT100, together with the supplementary schedule IHT100d, which is specifically for the periodic anniversary charge. Both are available on GOV.UK. IHT100d requires a full breakdown of the trust’s assets, market values on the day before the anniversary, details of any property added or distributed during the preceding decade, and the time-apportioned calculations.
The deadline for both filing and payment is the end of the sixth month after the 10-year anniversary. A trust with an anniversary on 15 March 2026 must file and pay by 30 September 2026. Interest runs from the due date on any late payment, so missing the deadline has a direct cost before any formal penalty comes into play.
Getting a Payment Reference
Before paying, trustees have to apply for an inheritance tax payment reference number using Form IHT122. HMRC asks for this application at least three weeks before the intended payment date, so it is not something to leave until the end. Payments should be sent separately from other forms or correspondence, because HMRC has warned that bundling a cheque with other documents can delay processing.
When the Calculated Charge Is Zero
Even where the trust value falls below the nil rate band and no tax is due, trustees should still consider whether they need to file. HMRC’s guidance on IHT100 does not automatically exempt trusts below the threshold from reporting, and failing to account for the anniversary can create problems if HMRC later queries the trust’s history. Professional advice on whether a nil return is needed is often worth the small cost.
Valuations and Liabilities
The value that counts is the market value on the day before the anniversary. Not what the assets were worth when they entered the trust, and not what the trustees hope they might be worth next year. For listed investments and bank accounts, that is straightforward. For real estate, private company shares, or partnership interests, valuation is where most disputes with HMRC begin.
Trustees holding property or unquoted business interests should arrange professional valuations well in advance of the anniversary. Leaving it until the deadline approaches gives no time to challenge or refine the figures. HMRC opens enquiries into trust valuations, and a defensible professional appraisal is the best protection against an upward adjustment.
Debts and liabilities of the trust can reduce the chargeable value, but only where they are genuine encumbrances on the trust property. A mortgage secured on a trust-held property reduces its net value for the 10-year calculation. Document each liability clearly as part of the anniversary reporting.