IHTM04096 - Settled property: charges on property held in discretionary trusts

There are two types of charges on property held in discretionary trusts - called relevant property (IHTM04095). 

There is a charge every ten years (the ten-yearly charge), IHTA84/S64. The first is on the tenth anniversary of the date that property first became comprised in the trust. 

The other charge is the proportionate charge, IHTA84/S65 which applies 

  • when the property ceases to be relevant property, IHTA84/S65 (1)(a) or 

  • when the trustees make a disposition (IHTM04023) which reduces the value of the relevant property, IHTA84/S65 (1)(b). 

The main examples of property ceasing to be relevant property are when 

  • the settlement (IHTM16041) comes to an end 

  • some of the property is distributed to beneficiaries 

  • an individual becomes beneficially entitled to an interest in possession (IHTM16060) in the settled property 

  • the property is appointed on special trusts (IHTM42801) and 

  • in some cases when the property becomes excluded property (IHTM04251) such as foreign  property comprised in a settlement when the settlor ceases to be long-term UK resident (IHTM47000) 

There are various circumstances in which the charge under IHTA84/S65 does not apply 

  • when the property becomes excluded property under IHTA84/S48ZA because it becomes non-UK situs 

  • when the event which would otherwise give rise to the charge occurs in the three months after either the settlement commences or a ten-year charge arises, IHTA84/S65 (4), and 

  • where the property ceasing to be relevant property becomes 

  • the property of a qualifying charity or other exempt body, IHTA84/S76 

  • held on certain specified trusts for employees, IHTA84/S75 and S75A, where the property concerned is shares or securities in the company, or 

  • held on trusts of an approved fund for the maintenance of heritage property, IHTA84/SCH4/PARA16 onwards. 

Example 

Shona, a long-term UK resident, has a discretionary settlement which she made in 2003 while domiciled in the UK. Shona ceases to be long-term UK resident on 6 April 2032 and the foreign property comprised in her settlement becomes excluded property at that time. There is a proportionate charge to reflect the period since the last ten-year anniversary (in 2023) and the property becoming excluded property on 6 April 2025.