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Trusts and IHT

Inheritance Tax (IHT) is commonly understood as the tax paid on an estate when an individual dies. However, it can also apply to certain lifetime transfers and there is a separate regime that applies to assets held in certain types of trust.

A trust is a legal arrangement where one or more “trustees” are made legally responsible for holding assets (for example land, money, buildings, or other investments) that have been placed (“settled”) in trust for the benefit of one or more “beneficiaries”.

There are three main occasions when IHT may be charged on arrangements involving most types of trust: when an individual settles assets in a trust, an IHT charge, commonly referred to as an ’entry charge’, is levied. Tax is charged at a rate of 20% on the chargeable value of the assets transferred into trust that is in excess of the IHT nil-rate band, when a trust reaches each ten-year anniversary from when it was set up a periodic charge is levied. This can be up to 6% of the chargeable value of the property in the trust, and when assets are transferred out of a trust, or the trust comes to an end an exit charge effectively ensures that a proportionate IHT charge is imposed on assets that would not be subject to tax at the next periodic charge.

Sorting out some of the implications of trusts and IHT can be confusing and complicated which is why you might want to turn to experienced IFAs like those at Enable of Bishops Stortford.

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