What is the 10-year charge on a discretionary trust?

It is an inheritance tax charge that falls on most discretionary trusts on every tenth anniversary of the date the trust was set up. HMRC calls it the ten-year anniversary charge or principal charge. It applies to 'relevant property' held in the trust, which covers money, shares, land and buildings. gov.uk states that trustees 'will have to pay a charge on every 10 year anniversary of the date your trust was set up if your trust contains relevant property with a value above the Inheritance Tax threshold'. The charge is the trustees' responsibility to work out, report and pay. Source: gov.uk, Trusts and Inheritance Tax.

Is the 10-year charge always 6%?

No. 6% is the maximum, and most trusts pay less. HMRC's own guidance says 'the rate may be anything up to 6%'. The rate comes out of a formula in section 66 of the Inheritance Tax Act 1984 that charges three-tenths of an effective rate, and the effective rate itself depends on how far the trust's value exceeds the available nil-rate band. A trust worth less than the available nil-rate band pays nothing at all. A trust worth just over it pays a very small percentage. Only a trust worth many times the nil-rate band approaches 6%. Source: HMRC Inheritance Tax Manual IHTM42081.

What is quick succession relief?

Quick succession relief reduces inheritance tax where the same assets are taxed twice in quick succession because two deaths happen within five years of each other. It is set out in section 141 of the Inheritance Tax Act 1984. If someone inherits assets, pays inheritance tax on them, and then dies within five years, the tax on their own estate is reduced by a percentage of the tax already paid on the earlier transfer. The percentage is 100% if the two events are a year or less apart, then 80%, 60%, 40% and 20% for each further year, and nothing after five years. Source: legislation.gov.uk, IHTA 1984 s.141.

What is an exit charge on a trust?

An exit charge, which HMRC also calls a proportionate charge, arises when relevant property leaves a discretionary trust between ten-year anniversaries. It is worked out by taking the rate that applied at the last ten-year anniversary and scaling it down by the number of complete three-month quarters that have passed since then, at one fortieth for each quarter. gov.uk describes it as inheritance tax 'charged up to a maximum of 6% on assets transferred out of a trust'. In practice the figure is usually far lower, because only part of a ten-year cycle has run. Source: HMRC Inheritance Tax Manual IHTM42114.

Can quick succession relief apply to a discretionary trust?

Quick succession relief works on transfers that increased a person's estate. Where a discretionary trust is concerned, the position depends on the exact structure and on whether the earlier transfer increased the value of the deceased's own estate for inheritance tax purposes. Trust interests can complicate this considerably, and the answer is not the same in every case. If you are a trustee or executor facing this situation, ask a solicitor or a chartered tax adviser to look at the specific facts before assuming relief is or is not available.

Does the 10-year charge apply to a trust set up by a will?

It can. A discretionary trust created by a will becomes a relevant property trust once it is up and running, and the ten-year clock runs from the date of death. There is an important exception in section 144 of the Inheritance Tax Act 1984: where trustees appoint property out of a will trust within two years of the death, and before any qualifying interest in possession has arisen, the will is generally treated as though it had always directed the property that way. Section 144 does not switch off the ten-year charge itself, which is expressly excluded from the provision, so the exception helps with early distributions rather than with a trust that continues past its first anniversary.

Discretionary trust inheritance tax: the 10-year charge, exit charges and quick succession relief

Q: Do trustees have to file a form for the 10-year charge?

Yes. Trustees report a ten-year anniversary charge to HMRC on form IHT100, with the relevant event form alongside it. For chargeable events on or after 6 April 2014, gov.uk states that reporting and payment are due within six months of the end of the month in which the chargeable event happened. Interest runs on tax paid after that date. The obligation sits with the trustees, not with the beneficiaries and not with the settlor's executors. Source: gov.uk, Trusts and Inheritance Tax.

Q: Which trusts do not pay the 10-year charge?

Bare trusts are outside the relevant property regime, because the assets are treated as belonging to the beneficiary rather than to the trust. Trusts for vulnerable beneficiaries also escape it: gov.uk states plainly that 'trusts usually have 10-year Inheritance Tax charges, but trusts with vulnerable beneficiaries are exempt'. That covers qualifying disabled person's trusts and bereaved minor's trusts. Some other trust types have their own regimes. Our guide to a trust in a will explains how the main types differ. Source: gov.uk, Trusts for vulnerable people.

A discretionary trust does not pay inheritance tax once and then sit undisturbed. It sits inside what the law calls the relevant property regime, which charges inheritance tax to the trust on a repeating cycle for as long as the trust exists. The main charge falls every ten years. A smaller charge falls whenever assets leave.

If you have become a trustee after a death, or you are an executor who has just discovered that the will sets up a discretionary trust, this is one of the duties that comes with the role. It is also one of the least understood, because nothing about it is automatic and HMRC will not calculate it for you.

Separately, and for a different reason, inheritance tax has a relief that softens the blow when the same money is taxed twice in a short space of time. That is quick succession relief, and it is worth knowing about because it is easy to miss on a form.

This guide covers both. Here is the short version:

The ten-year anniversary charge applies to most discretionary trusts on each tenth anniversary of the day the trust started
The maximum rate is 6%, but the rate is calculated, not fixed, and most trusts pay considerably less
A trust holding less than the available nil-rate band pays nothing
Exit charges apply when assets leave the trust between anniversaries, scaled by how much of the ten-year cycle has run
Quick succession relief cuts the inheritance tax on an estate where the deceased inherited taxed assets within the previous five years, at 100% down to 20% depending on the gap
Reporting and payment are the trustees’ responsibility, on form IHT100, within six months

If a ten-year anniversary is close and you need to know what you have to file and by when, skip ahead to what trustees have to do.

What the relevant property regime is

Inheritance tax normally arrives on a death. Trusts are different, because a trust can hold wealth indefinitely without anybody dying. To stop trusts being used to park assets outside the tax system forever, the Inheritance Tax Act 1984 charges tax to the trust itself on a rolling basis.

gov.uk puts it simply: “You pay Inheritance Tax on ‘relevant property’ – assets like money, shares, houses or land. This includes the assets in most trusts” (gov.uk – Trusts and Inheritance Tax).

Most discretionary trusts hold relevant property. So do most trusts where nobody has a fixed right to the income. The regime produces two kinds of charge:

Charge	When it arises	Legislation
Ten-year anniversary charge (principal charge)	Every tenth anniversary of the trust’s start date	IHTA 1984 s.64, s.66
Exit charge (proportionate charge)	When relevant property leaves the trust	IHTA 1984 s.65

There may also be an entry charge when assets go into a trust during the settlor’s lifetime, above the nil-rate band. That is a separate matter from the two charges covered here.

The ten-year anniversary charge

When it falls

Section 64 of the Inheritance Tax Act 1984 sets the trigger: where, immediately before a ten-year anniversary, all or part of the property in a settlement is relevant property, tax is charged on its value (legislation.gov.uk – IHTA 1984 s.64).

The anniversary runs from the date the trust started, not from the date any particular asset went into it. For a trust created by a will, that means the date of death. For a lifetime trust, the date of the trust deed. A trust set up on 12 May 2016 has its first ten-year anniversary on 12 May 2026, its second on 12 May 2036, and so on for as long as it lasts.

What is valued

The charge looks at the net value of the relevant property in the trust on the day before the anniversary, after deducting debts and any reliefs that apply. Business property relief and agricultural property relief can both reduce the figure, which matters a great deal for trusts holding a trading business or farmland. Our guide to business property relief covers how that relief works and what qualifies.

HMRC’s manual notes an important asymmetry in the calculation: “The rate and tax calculation for the TYA charge uses the current value of the relevant property but all other cumulative values used to calculate the tax charge are historic (not current) values” (HMRC Inheritance Tax Manual IHTM42081). The trust’s assets are valued now. The settlor’s old transfers are taken at their original values.

How the rate is worked out

This is where most people lose the thread, so it is worth walking through slowly.

Section 66 charges tax at “three tenths of the effective rate” on a notional chargeable transfer (legislation.gov.uk – IHTA 1984 s.66). Three-tenths of the 20% lifetime rate is 6%, which is where the headline maximum comes from. HMRC states the position directly: “The rate may be anything up to 6%” (IHTM42081).

HMRC’s manual sets out the steps (HMRC Inheritance Tax Manual IHTM42087):

Take the value of the relevant property in the trust, adding in related settlements and same-day additions where they apply. Call this the notional transfer.
Work out the nil-rate band available to the trust. The standard threshold is £325,000 (gov.uk – Inheritance Tax), reduced by the settlor’s chargeable transfers in the seven years before the trust started and by any capital payments already made out of the trust.
Subtract the available nil-rate band from the notional transfer, multiply the excess by 20%, divide the result by the notional transfer to get the effective rate, then multiply by three-tenths. The answer cannot exceed 6%.

HMRC’s own worked example uses a trust worth £450,000 with £275,000 of nil-rate band available. The excess is £175,000. At 20% that is £35,000 of notional tax. Divided by £450,000 that gives an effective rate of 7.7778%. Three-tenths of that is an actual rate of 2.3333%, which on £450,000 produces a charge of £10,500 (IHTM42087). HMRC’s published version of this example rounds the rate to 2.333% and shows £10,498.50, so expect small differences depending on where the rounding falls. On a real trust, work to the full unrounded figures and round only at the end.

Two things stand out from that example. The rate is nowhere near 6%. And the reason it is not is that the trust is only modestly above the nil-rate band.

The point most people miss

A trust holding relevant property worth less than its available nil-rate band pays no ten-year charge at all. There is no excess to tax. gov.uk’s own wording ties the charge to a trust that “contains relevant property with a value above the Inheritance Tax threshold”.

The 6% ceiling is approached only as the trust’s value climbs far above the nil-rate band, because the effective rate is the notional tax expressed as a share of the whole trust, and that share rises towards 20% as the untaxed slice becomes proportionally smaller. A trust would need to be worth several million pounds before the rate got close to the maximum.

If the property has not been in the trust for the full ten years

Section 66(2) reduces the rate where the property was not relevant property throughout the whole period, by one fortieth for each complete quarter before it became relevant property. Assets added part way through a cycle are therefore charged on less than the full rate at the next anniversary.

Exit charges

When relevant property leaves a discretionary trust between anniversaries, an exit charge (HMRC calls it a proportionate charge) may arise. gov.uk describes it as inheritance tax “charged up to a maximum of 6% on assets” that are “transferred out of a trust”, naming money, land and buildings as examples.

The mechanism is a scaled-down version of the ten-year charge. HMRC’s manual explains: “The appropriate fraction is one 40th of the number of complete quarter years from the start of the trust to the date of charge” (HMRC Inheritance Tax Manual IHTM42114). Forty quarters make ten years, so a distribution three years into a cycle carries twelve fortieths of the rate.

HMRC’s worked example takes a rate of 4.159% with twelve complete quarters elapsed. Twelve fortieths of 4.159% is 1.2477%, which HMRC states as 1.248%, and on an exit value of £350,000 that produces £4,368 of tax (IHTM42114). As with the ten-year calculation, the exact pounds and pence shift slightly depending on how many decimal places you carry through.

Distributions in the first ten years of a brand new trust use a rate derived from the trust’s initial value and the settlor’s history, since there has been no anniversary yet to set one. After the first anniversary, the rate established at that anniversary is the starting point for exits in the following decade.

Quick succession relief

What it is for

Quick succession relief deals with a different unfairness. Someone inherits assets and inheritance tax is paid on them. Then that person dies a short time later, and the same assets are taxed again as part of their own estate. Without relief, one pot of money would carry two full inheritance tax charges in the space of a few years.

HMRC describes the relief as designed “to reduce the burden of Inheritance Tax (IHT) where an estate taxable on death includes assets received within the previous five years under an earlier transfer on which tax was (or becomes) payable” (HMRC Inheritance Tax Manual IHTM22041).

It is set out in section 141 of the Inheritance Tax Act 1984, under the heading “Two or more transfers within five years”.

The percentages

The relief reduces the tax on the later death by a percentage of the tax paid on the earlier transfer. The percentage depends entirely on the gap between the two events:

Time between the earlier transfer and the death	Relief
One year or less	100%
More than one year, up to two years	80%
More than two years, up to three years	60%
More than three years, up to four years	40%
More than four years, up to five years	20%
More than five years	No relief

These percentages come directly from section 141(3) (legislation.gov.uk – IHTA 1984 s.141) and are repeated in HMRC’s manual (HMRC Inheritance Tax Manual IHTM22052). HMRC adds a helpful note for the awkward case where a death falls exactly on an anniversary of the earlier transfer: “give the taxpayer the benefit of the doubt and allow relief on the higher percentage.”

How the amount is calculated

The relief is not simply the percentage applied to the earlier tax bill. It is scaled by how much of the earlier transfer’s value the deceased received after tax.

HMRC sets out the formula as (A ÷ D) × B × C (HMRC Inheritance Tax Manual IHTM22051), where:

A is the amount by which the deceased’s estate increased
B is the tax on the earlier chargeable transfer
C is the appropriate percentage from the table above
D is the value of the earlier chargeable transfer

The A ÷ D fraction compares what the deceased ended up with against the gross value that was taxed. Where inheritance tax came out of the inheritance itself, A is the net figure, the fraction is less than one, and the relief scales back to match. B and C then apply that fraction to the earlier tax bill at the percentage set by the gap between the two events.

Two further points from the legislation. Section 141(4) covers the case where there is more than one later transfer: relief goes to the earliest of them, and only spills over to later transfers if the first reduction does not use up the whole of the earlier tax. And section 141(6) requires certain reversionary interests to be disregarded when working out whether the estate was increased at all.

When quick succession relief does not apply

HMRC lists the situations where there is no relief (HMRC Inheritance Tax Manual IHTM22043). There can be none where the earlier transfer to the deceased was:

exempt
chargeable but with no tax payable because it fell below the threshold
more than five years before the death

There is also no relief where no tax is payable on the death estate at all, because it is wholly exempt or because the total chargeable transfers fall below the threshold. Relief that reduces a bill of nothing is worth nothing.

The first condition is worth pausing on if you have recently lost both parents. An inheritance from a spouse or civil partner is covered by the spouse exemption, so no tax was paid on it, and quick succession relief then has nothing to work with when the survivor dies. The relief exists for the case where tax was in fact paid twice.

Claiming it

Quick succession relief is claimed as part of the inheritance tax account on the death, not by separate application. HMRC’s guidance directs executors claiming a deduction for QSR to complete the relevant boxes of the IHT400 calculation. It will not be applied for you, so an executor who does not know the deceased inherited taxed assets within the previous five years will simply not claim it.

If you are administering an estate and the person died within five years of inheriting from someone else, this is worth raising with whoever is preparing the account. Our guide to how to pay inheritance tax explains the wider process and the deadlines.

Which trusts sit outside the ten-year charge

Not every trust is caught by the relevant property regime.

Bare trusts are outside it. The assets are treated as belonging outright to the beneficiary, so there is nothing for the trust regime to charge.

Trusts for vulnerable beneficiaries are exempt. gov.uk states it in as many words: “Trusts usually have 10-year Inheritance Tax charges, but trusts with vulnerable beneficiaries are exempt” (gov.uk – Trusts for vulnerable people). This covers qualifying disabled person’s trusts and bereaved minor’s trusts, each with its own conditions about who the payments must go to.

Will trusts wound up within two years get special treatment under section 144 of the Inheritance Tax Act 1984. Where trustees appoint property out of a will trust within two years of the death, and before any immediate post-death interest or disabled person’s interest has arisen, the Act has effect “as if the will had provided that on the testator’s death the property should be held as it is held after the event” (legislation.gov.uk – IHTA 1984 s.144).

One detail of section 144 deserves care, because it is often stated too broadly. The provision expressly excludes section 64 from the events it covers. It is a route for dealing with distributions in the first two years, not a general exemption from the ten-year charge for a trust that carries on beyond its first anniversary.

For how discretionary, life interest and bare trusts differ from each other, and why a will might use one rather than another, see our guide to a trust in a will.

A separate but related trap: leaving a home into a discretionary trust generally forfeits the residence nil-rate band as well, because no single beneficiary has an automatic right to inherit the property – the same section 144 two-year appointment can sometimes preserve it.

What trustees have to do

The obligation sits with the trustees.

Report on form IHT100. gov.uk confirms that trustees submit the “IHT100 Inheritance Tax Account form” together with the relevant event form for the charge in question.

Meet the six-month deadline. For chargeable events on or after 6 April 2014, gov.uk states that reporting and payment are due within six months of the end of the month in which the chargeable event happened. Interest runs on anything paid after that.

Keep the records that make the calculation possible. The calculation needs the settlor’s chargeable transfers in the seven years before the trust started, the value of any related settlements, and every capital distribution made out of the trust. Those figures may date back decades. A trust that has changed trustees more than once can easily have lost them, and reconstructing a settlor’s gift history forty years after the event is difficult. Keeping a running file from the outset is the single most useful thing a trustee can do for whoever holds the role next.

Diarise the anniversary. Nothing prompts you. HMRC does not write to remind trustees, and the six-month clock runs from the anniversary whether anyone noticed it or not.

Where to get help

The calculations above are simplified to show the shape of the rules. Real trusts bring in related settlements, same-day additions, added property part way through a cycle, business and agricultural reliefs, and the possibility that some of the trust is not relevant property at all. Any one of those can change the answer materially.

If you are a trustee facing a ten-year anniversary, or an executor who has found a trust in a will, get the calculation done by someone who does them regularly. A solicitor specialising in trusts, a chartered tax adviser, or an accountant with trust experience will all handle this. The cost of the advice is usually small against the cost of getting a six-figure valuation and a decade of cumulative transfers wrong on an HMRC form.

For general questions about a trust’s inheritance tax position, HMRC’s trusts helpline can help with process, though it will not calculate the charge for you.

Last verified 8 September 2026.