Calculation of exit charge before 18 November 2015

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Calculation of exit charge before 18 November 2015
  • Summary of the changes
  • Calculation of the exit charge
  • Calculation of the exit charge before the first TYA
  • Calculation of the exit charge between ten-year anniversaries

When trust property ceases to be relevant property, it becomes subject to a charge to inheritance tax. This charge is known as either:

  • the exit charge
  • the proportionate charge

IHTA 1984, s 65

This guidance note illustrates the method of calculating an exit charge when the occasion of charge, ie the date of the beneficiary’s entitlement, was before 18 November 2015. Changes to the elements of the calculation were introduced by F(No 2)A 2015, s 11. General commentary on the calculation of the exit charge is provided in the Exit charge guidance note, which also illustrates the most recent amendments. This guidance note provides:

  • a summary of the changes
  • a description of the old style calculation
Summary of the changes

HMRC undertook a series of consultations in the period 2012 to 2015 with the expressed intention of simplifying the inheritance tax charges on trusts. Initially, the consultations focused on the difficulty of obtaining historic information and the complexity of the calculations. During the course of the dialogue, it became apparent that HMRC was also aiming to restrict the tax planning opportunities offered by pilot trusts. By creating multiple trusts with a low initial value, it was possible to add substantial property to those trusts at a later date, usually on death, so that each trust would benefit from its own nil rate band. See the Pilot trusts and will planning guidance note for an explanation of the planning.

The changes introduced by F(No 2)A 2015 do partly address the difficulty of obtaining historic information. As illustrated by the proforma below, charges arising before 18 November 2015 include reference to the

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