The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The term ‘relevant property’ defines a category of trust property which is subject to a special regime for inheritance tax. As described in the Taxation of trusts ― introduction guidance note, the inheritance tax treatment of trust property falls into two broad categories:
In the ‘beneficial entitlement’ category, trust property is subject to inheritance tax as if it belonged outright to the beneficiary. It is deemed to be his and is treated as part of his estate. Typically, this treatment applies where the beneficiary has a qualifying interest in possession (QIIP), or where he has an absolute entitlement to the trust property. See the Qualifying interest in possession and Bare trusts ― IHT guidance notes.
By contrast, relevant property has an independent tax regime. Once it is effectively removed from the settlor’s estate, it is not taxed as part of any other individual’s estate. To compensate for this, a special regime applies. Relevant property may be subject to inheritance tax on the following occasions:
when it becomes relevant property. This is usually when a trust is created or added to, but it could be when the status of assets within a trust changes ― see the Chargeable lifetime transfers guidance note
at 10-year intervals within a trust ― see the Principal (10-year) charge guidance note
when it leaves the trust ― see the Exit charge guidance note
The methods of calculating the inheritance tax on each of these occasions are described in the guidance notes indicated.
Relevant property is defined negatively in the legislation. It means “settled property in which no qualifying interest in possession subsists”. In addition, there are some specific exceptions where the trust property does not qualify as a QIIP, but it is also excluded from the relevant property regime. A summary of these exceptions and their IHT treatment is given in the table below.
A reading of the trust instrument will usually
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