Principal (10-year) charge

Produced by Tolley
Principal (10-year) charge

The following Trusts and Inheritance Tax guidance note Produced 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
  • Rate of charge
  • Notional transfer
  • Available nil rate band
  • Practical aspects of the calculation
  • Same-day addition
  • Accumulated and undistributed income
  • Principal charge proforma

Trustees of a relevant property trust are charged to inheritance tax on each 10th anniversary after the trust was created. This charge is known as any of the following:

  1. the principal charge

  2. the periodic charge

  3. the 10-year charge

  4. the decennial charge

IHTA 1984, s 64(1)

This guidance note explains how to work out the amount of tax payable on a 10-year anniversary for a settlement that was created on or after 27 March 1974. 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.

For the rules applying to settlements created before 27 March 1974, see IHTM42130.

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 the Calculation 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:

  1. the date of the 10-year anniversary

  2. the date the trust was created

  3. the dates of creation and additions to all other trusts created by the same settlor

These dates will determine which rules apply.

The basis of the principal charge

The

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