The 10 Year Charge (Decennial Charge)

The 10 Year Charge (Decennial Charge)

The 10 year charge (decennial charge) imposes Inheritance Tax on the value of assets held in trusts based upon their market value at each tenth anniversary. 

The charge to tax is on relevant property, in the case of a UK domiciled settlor this means all property that is held or has been held in the trust. 

Relevant Property

Within a non-resident trust created by a UK domiciled settlor (and therefore has UK domicile status) the worldwide trust assets are “relevant property”. This means all its assets are still subject to exit and decennial charges as for UK trusts. The fact that the assets may be foreign assets held by non-resident trustees is irrelevant.

Where a non-resident trust is created by a non-UK domiciled settlor (and therefore has non-UK domicile status), any trust assets held outside the UK are “excluded property”. These assets are not subject to exit and decennial charges.

However, a trust settled by a non-UK domiciled individual that holds UK-situated property and/or (from 6 April 2017) UK residential property via an envelope, such as an offshore company, is relevant property and may be subject to decennial charges.

10 year charge

In the case of relevant property, situations may exist where either Business Property Relief or Agricultural Property Relief may apply to reduce the effective value of assets liable to IHT and this is also respected in the ten year and periodic charges which apply.

Non-domiciled Trustees can exchange UK assets for non-UK assets prior to a 10-year anniversary in order to avoid a decennial charge. For example, switching cash from a UK bank to an offshore account, or physically taking moveable assets such as cars and artwork out of the UK, will reduce IHT exposure.

The Calculation

The calculation of the decennial charge takes into account the following:

  • The value of relevant property in the trust immediately after commencement
  • The value of relevant property in a related trust (i.e. another trust settled on the same day)
  • Chargeable transfers made by the same individual in the period of 7 years prior to settling the trust immediately after commencement
  • The value of other relevant property which was added to the trust after it commenced

The rate of tax applied is 3/10 of the ‘effective rate’ and is used to calculate the charge.

The calculation makes allowance for the ‘nil rate band’ at the trust’s tenth anniversary and in the case of smaller trusts this can be significant in reducing the effective rate of tax charged.

A basic decennial charge requires several phases in order to calculate the chargeable amount. These calculations are as follows.

(See Section 66 IHTA 1984 for a full explanation)

Value of relevant property at 10-year anniversary (net of APR/BPR)A 
Initial value of relevant property in any associated trustsB 
Nil band at date of principal chargeNB 
Settlor’s chargeable transfers in 7 years before creation of trust(CTs) 
Distributions by Trustees in last 10 years(D) 
Nil band remaining (NBR)
Notional tax (E @ 20%) NT
Effective rate: NT/C × 100 ER (%)
Actual rate: ER% × 30%  AR (%)
Decennial charge: Current value (A) × AR (%) DC

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This guide is an informative piece and does not constitute tax advice for individual matters.