Principal (10 year) charge

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:

  • Principal (10 year) charge
  • The basis of the principal charge
  • Elements of the principal charge calculation
  • Same day addition
  • Undistributed income
  • Principal charge proforma

This document discusses the basis of principal charge calculation, elements of the principal charge calculation, and the proforma. It also covers rules on same day addition and treatment of undistributed income.

 

Trustees of a relevant property trust are charged to inheritance tax on each tenth anniversary after the trust was created. This charge is known as any of the following:

  • the principal charge
  • the periodic charge
  • the 10 year charge
  • the decennial charge

IHTA 1984, s 64(1)

This guidance note explains how to work out the amount of tax payable. It applies to occasions of charge on or after 18 November 2015, which was the date of Royal Assent of the second Finance Act of 2015. F(No 2) A 2015 amended the rules for calculating the principal charge. The former rules are outlined in the Calculation of principal (10 year) charge before 18 November 2015 guidance note.

See the Relevant property guidance note for an explanation of what relevant property is and how the date of the anniversary is determined.

The calculation of periodic and exit charges on relevant property has long been recognised as problematic. Not only is the calculation itself complex but it can be difficult to find out all the information required. The government engaged in a series of consultations over the period 2012 to 2015 with a view to simplifying the calculations, and tackling certain tax avoidance arrangements. A number of proposals were made and later abandoned. Brief details are given in theCalculation of principal (10 year) charge before 18 November 2015 guidance note. Although certain aspects have been simplified, other complications and transitional provisions have crept in.

As a result of the history and structure of the law, the first facts one needs to establish when dealing with a principal charge are:

  • the date of

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