A quarter period for inheritance tax may last for only a day or so on or after 6 April 2025 when excluded property trusts may become relevant property trusts. So move fast.
When we set up discretionary trusts, we of course have to bear in mind that these will be subject to the relevant property regime for IHT. This means that the value of the trust is taxed to IHT at up to 6% every 10 years, and to a proportion of 6% on any exit of capital out between 10 year anniversaries.
Excluded property trusts where the settlor is currently non-domiciled will fall within the relevant property regime for inheritance tax on 6 April 2025 unless the settlor is not at that time a long-term resident.
Relevant property trusts suffer ten-year charges and exit charges.
An exit charge arises in a number of events including when the property ceases to be relevant property as will occur when the trust is wound up.
A number of clients have been looking to collapse trusts (which move from the excluded property regime to the relevant property regime on 6 April 2025) immediately when the new regime begins on 6 April 2025.
The issue is that as soon as the new regime starts on 6 April 2025, as mentioned, an excluded property trust will immediately fall within the relevant property regime if the settlor is a long-term resident. Further, when such a trust is collapsed there will then be an exit charge because the property will cease to be relevant property (IHTA 1984 s 65(1)(a)).
When an exit charge occurs, the inheritance tax charge is by reference to the number of quarters in which (not throughout which) the property has held relevant property.
This means that, in certain circumstances, there can be a really short period of time in which a quarter is ‘tainted’ with the relevant property regime (on or after 6 April 2025) and before the next quarter automatically starts.
In other words, you may be unlucky and have two quarters which are subject to the relevant property rules, rather than one – if you are thinking of collapsing the trust quickly.
After all, each quarter starts on the same day of a month as the day of the month on which the settlement started but of course each quarter runs at three-monthly intervals.
For example, a settlement which started in any year on 7 January will find that each successive quarter finishes on 6 April, then 6 July, then 6 October and then 6 January. So, you can see that such a settlement will only have one day on which to exit as its first tainted quarter ends on 6 April 2025, having started on 7 January 2025.
Indeed, settlements that were created on, say, the 7th, 8th, 9th, 10th or other similar dates in January, April, July or October of any year will not have much time to exit if they want to have just one quarter which is ‘tainted’ by the relevant property rules.
Action: Look at the date on which the settlement commenced and work out when each quarter ends. If a quarter ‘creeps into’ a period starting on 6 April 2025, then you need to move fast.
Legislation: See especially IHTA 1984 ss 65(1)(a), 68(3) and 69(4).
Home >Articles > Excluded property trusts and 6 April 2025
Excluded property trusts and 6 April 2025
A quarter period for inheritance tax may last for only a day or so on or after 6 April 2025 when excluded property trusts may become relevant property trusts. So move fast.
When we set up discretionary trusts, we of course have to bear in mind that these will be subject to the relevant property regime for IHT. This means that the value of the trust is taxed to IHT at up to 6% every 10 years, and to a proportion of 6% on any exit of capital out between 10 year anniversaries.
Excluded property trusts where the settlor is currently non-domiciled will fall within the relevant property regime for inheritance tax on 6 April 2025 unless the settlor is not at that time a long-term resident.
Relevant property trusts suffer ten-year charges and exit charges.
An exit charge arises in a number of events including when the property ceases to be relevant property as will occur when the trust is wound up.
A number of clients have been looking to collapse trusts (which move from the excluded property regime to the relevant property regime on 6 April 2025) immediately when the new regime begins on 6 April 2025.
The issue is that as soon as the new regime starts on 6 April 2025, as mentioned, an excluded property trust will immediately fall within the relevant property regime if the settlor is a long-term resident. Further, when such a trust is collapsed there will then be an exit charge because the property will cease to be relevant property (IHTA 1984 s 65(1)(a)).
When an exit charge occurs, the inheritance tax charge is by reference to the number of quarters in which (not throughout which) the property has held relevant property.
This means that, in certain circumstances, there can be a really short period of time in which a quarter is ‘tainted’ with the relevant property regime (on or after 6 April 2025) and before the next quarter automatically starts.
In other words, you may be unlucky and have two quarters which are subject to the relevant property rules, rather than one – if you are thinking of collapsing the trust quickly.
After all, each quarter starts on the same day of a month as the day of the month on which the settlement started but of course each quarter runs at three-monthly intervals.
For example, a settlement which started in any year on 7 January will find that each successive quarter finishes on 6 April, then 6 July, then 6 October and then 6 January. So, you can see that such a settlement will only have one day on which to exit as its first tainted quarter ends on 6 April 2025, having started on 7 January 2025.
Indeed, settlements that were created on, say, the 7th, 8th, 9th, 10th or other similar dates in January, April, July or October of any year will not have much time to exit if they want to have just one quarter which is ‘tainted’ by the relevant property rules.
Action: Look at the date on which the settlement commenced and work out when each quarter ends. If a quarter ‘creeps into’ a period starting on 6 April 2025, then you need to move fast.
Legislation: See especially IHTA 1984 ss 65(1)(a), 68(3) and 69(4).
