Inheritance Tax on Trusts: Charges, 10-Year Anniversaries, and Exit Charges
Trusts do not take assets out of Inheritance Tax. That is the first thing to understand: putting property into most lifetime trusts does not remove it from the tax system, it moves it into a different set of charges. Most lifetime trusts sit in the "relevant property" regime, which has three charges of its own — an entry charge, a charge every ten years, and a charge when assets leave. Bare trusts are treated differently, and so are trusts created by a will.
In short
Property in a relevant property trust is charged at 20% on entry (on value above the nil-rate band), up to 6% on every 10-year anniversary, and up to 6% when assets leave the trust. If the settlor dies within 7 years of the transfer, tax of up to 40% can apply, with credit for the 20% already paid. Bare trusts are different: a gift into a bare trust is a potentially exempt transfer, with no entry, 10-year or exit charges.
The relevant property regime
Property transferred into relevant property trusts is subject to ongoing Inheritance Tax charges rather than being included in the settlor's or beneficiary's estate on death. The main charges are an anniversary charge at 10-year intervals and an exit charge when property leaves the trust. The nil-rate band (£325,000) is used in calculating the periodic and exit charges.
The three charges
Entry charge: a lifetime transfer into a relevant property trust is subject to an immediate charge at 20% of the gross value of the transfer, after reliefs, exemptions and nil-rate bands have been applied. 10-year anniversary charge: a principal charge of up to 6% of the value of the relevant property in the settlement at each 10-year anniversary. Exit charge: when relevant property is distributed or disposed of, trustees pay a proportion of the 6% charge based on the length of time since the creation of the settlement or the last 10-year charge.
If the settlor dies within 7 years
If the settlor dies within 7 years of a transfer into trust, Inheritance Tax is due on the value of transfers into trust during that period at up to 40%, with credit for the 20% entry charge already paid and taper relief applying. The transfer is not forgotten just because the entry charge was paid.
When the charges do not apply
If settled property is fully eligible for the 100% rate of agricultural or business property relief, its value is reduced to nil and it is not subject to 10-year anniversary or exit charges. From 6 April 2026, a £2.5 million allowance also applies to the combined value of relievable agricultural and business property in trusts — see the business and agricultural relief guide.
Bare trusts are different
A gift into a bare trust is a potentially exempt transfer — free of Inheritance Tax if the giver survives 7 years — with no entry, 10-year or exit charges, and the beneficiary can take the assets at 18 (16 in Scotland). A bare trust is the simplest form of trust, and its tax treatment follows the ordinary gift rules rather than the relevant property regime.
Sources: GOV.UK, Reforms to Inheritance Tax reliefs: application in relation to trusts; GOV.UK, Inheritance Tax nil-rate band and residence nil-rate band thresholds from 6 April 2026 to 5 April 2028; GOV.UK, Agricultural property relief and business property relief changes.