Last reviewed: 24 May 2026 by the MP Estate Planning editorial team. Jurisdiction: England and Wales. Scotland and Northern Ireland have different probate and intestacy rules; the IHT thresholds are UK-wide.

By the MP Estate Planning UK editorial team · Estate planning information for England & Wales · Updated June 8, 2026

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Inheritance Tax 10 Year Charge: What You Need to Know

Inheritance tax planning can be complicated, especially when trusts are involved. One concept that often causes confusion is the inheritance tax 10 year charge. If you’re setting up or managing a trust, understanding this rule is essential to minimise unexpected tax bills and to protect your family’s wealth.

In this guide, we’ll break down what the 10 year charge is, when it applies, how much it could cost, and how to plan ahead effectively. If you manage a trust or are considering one as part of your estate planning, this article will give you the clarity you need.

For tailored advice on trusts and inheritance tax, book a free consultation with MP Estate Planning.

What Is the Inheritance Tax 10 Year Charge?

The 10 year charge, also known as the periodic charge, is a form of inheritance tax (IHT) that applies to most discretionary trusts. It is assessed every 10 years after the trust is created and can result in a tax charge on the value of the trust’s assets.

Discretionary trusts do not transfer assets outright to beneficiaries. Instead, trustees have control over when and how the assets are distributed. Because the assets are held in trust and not taxed as part of an individual’s estate upon death, HMRC applies the 10 year charge to ensure some level of taxation occurs over time.

Why the Rule Exists

The UK government introduced the 10 year charge to prevent people from using trusts to permanently reduce their inheritance tax exposure. Instead of reducing IHT exposure, discretionary trusts are subject to ongoing reviews and potential taxation.

Which Trusts Are Affected by the 10 Year Charge?

The 10 year charge primarily affects relevant property trusts, which include:

• Discretionary trusts
• Interest in possession trusts created on or after 22 March 2006
• Accumulation and maintenance trusts that have been altered

Trusts that do not fall into the relevant property category, such as bare trusts or qualifying interest in possession trusts created before the 2006 changes, are not usually subject to the 10 year charge.

When Is the 10 Year Charge Assessed?

The 10 year charge is assessed every 10 years from the date the trust was created. This date is known as the ten-year anniversary. The tax is calculated based on the value of the trust’s assets at that point in time, minus any applicable exemptions or reliefs.

Trustees are legally responsible for calculating the tax owed and reporting it to HMRC. If the trust was set up in April 2014, for example, the first 10 year charge would be due in April 2024.

For detailed official guidance, see the GOV.UK guidance on inheritance tax on trusts.

How Is the 10 Year Charge Calculated?

The maximum 10 year charge is 6% of the trust’s value over the nil rate band, which is currently £325,000 (gov.uk, Inheritance Tax) (as of 2024). If the trust’s assets exceed the nil rate band, inheritance tax is due on the excess.

Basic Calculation Example

• Total value of trust: £500,000
• Nil rate band: £325,000
• Taxable amount: £175,000 (gov.uk, RNRB)
• Tax due: £175,000 x 6% = £10,500

However, this is a simplified example. Several factors can influence the actual tax owed, including:

• Whether the trust received any chargeable transfers in the 7 years before creation
• Whether business or agricultural property reliefs apply
• How the trust assets have been managed over time

To ensure accurate reporting and compliance, it’s advisable to seek professional assistance. Book a call with MP Estate Planning if you’re unsure about your obligations.

Are There Other Charges on Trusts?

Yes, trusts may also face the following charges:

1. Entry Charge

This is a one-off tax that applies when assets are transferred into a relevant property trust and the transfer exceeds the nil rate band. It is also capped at 20% if paid during the donor’s lifetime.

2. Exit Charges

Exit charges apply when assets are distributed from the trust between 10-year anniversaries. These are pro-rated based on the time since the last periodic charge or trust creation.

Can the 10 Year Charge Be Avoided?

It’s not usually possible to completely eliminate the 10 year charge on discretionary trusts, but you can take steps to minimise or reduce the tax burden:

1. Use the Nil Rate Band Strategically

Keep trust assets below the current nil rate band of £325,000 to reduce your tax exposure. This may involve spreading assets across multiple trusts or using staggered transfers.

2. Consider Business or Agricultural Property Relief

If the trust contains business or agricultural assets, reliefs of up to 100% may apply. These can significantly reduce the trust’s taxable value.

3. Time Distributions Carefully

Exit charges are lower if assets are distributed shortly after a ten-year anniversary, since much of the tax will have just been paid. Planning the timing of distributions can help manage tax exposure.

4. Review the Type of Trust

Depending on your circumstances, another type of trust, like a life interest trust, might offer better tax treatment.

For strategic advice on trust planning, see our guide on Inheritance Tax Planning.

Trustees’ Responsibilities for the 10 Year Charge

Trustees must:

• Calculate the 10 year charge
• Submit form IHT100 to HMRC
• Pay the tax within 6 months of the 10-year anniversary
• Keep detailed records and asset valuations

Failure to comply can result in interest charges and penalties. HMRC can also hold trustees personally liable if the trust fails to pay the tax due.

Do All Trusts Need to Pay the 10 Year Charge?

No, the 10 year charge does not apply to:

• Bare trusts: Where assets are held for a named beneficiary who has immediate access
• Disabled person’s trusts: Special rules apply to protect vulnerable beneficiaries
• Interest in possession trusts created before March 2006

Always consult a professional to determine whether your trust qualifies for an exemption.

Common Mistakes to Avoid

• Ignoring the anniversary date: Trustees must be aware of when charges apply
• Incorrect asset valuation: Can lead to underpayment or HMRC penalties
• Not claiming reliefs: Valuable business and agricultural reliefs are often overlooked
• Poor documentation: Keep full records of transactions, valuations, and trust deeds

Real-Life Example: Trust Faces Unexpected £9,000 IHT Bill

In one recent case, a family placed £400,000 into a discretionary trust in 2013. They failed to plan ahead for the 10-year review. By 2023, the trust had grown to £480,000. Because it exceeded the nil rate band, the trustees had to pay a 6% tax on £155,000, equating to £9,300. Proper planning and use of reliefs could have reduced this bill significantly.

Planning Ahead for Future Charges

The best way to manage the 10 year charge is by preparing early and reviewing your trust every few years. Don’t wait until just before the charge is due to act.

Book your free consultation with MP Estate Planning to explore your options for reducing inheritance tax exposure and safeguarding your assets for the next generation.

Conclusion: Stay Informed, Stay Protected

The inheritance tax 10 year charge is a critical consideration for anyone managing or setting up a trust. While the rules are complex, understanding them can help you avoid costly mistakes and ensure your assets are used the way you intend.

With the right planning, professional advice, and timely action, you can help reduce your estate’s inheritance tax and pass on more to your loved ones. If you’re unsure about how the 10 year charge applies to your trust, we’re here to help.

• Book your free consultation with a trust expert
• Visit our Inheritance Tax Planning page to learn more

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How the Entry Charge Sets the Baseline for the 10-Year Periodic Charge

One area where trustees and settlors frequently underestimate their exposure is the relationship between the initial transfer into trust, the entry charge, and the 10-year periodic charge that follows. These are not isolated calculations. In most cases, the value transferred on creation of the trust, and any related tax history of the settlor, directly shapes the rate applied at each decennial anniversary.

The Notional Transfer and Cumulation Rules

When calculating the 10-year charge, HMRC does not simply look at what the trust holds on the anniversary date. Trustees are required to perform what is known as a notional transfer: a hypothetical calculation that treats the trust assets as if they were being transferred by an individual at that point. Critically, this notional transfer must take into account the settlor’s aggregate chargeable transfers made in the seven years before the trust was created. This is the cumulation principle, and it means that if the settlor had made other chargeable lifetime transfers shortly before settling the trust, those earlier transfers effectively consume part of the nil rate band available, increasing the taxable proportion of the trust fund.

Under HMRC’s Inheritance Tax Manual at IHTM42082, the prescribed method for the principal charge requires trustees to identify the value of relevant property in the settlement, add any related settlements and any non-relevant property in the same settlement, and then apply the notional rate derived from that cumulated figure.

Arriving at the Effective Rate: The 30/40 Fraction

The lifetime rate of inheritance tax is 20%. However, the 10-year periodic charge is not levied at 20%. Instead, HMRC applies a fraction of 30/40ths of that lifetime rate, producing an effective maximum rate of 6% of the value of relevant property. This ceiling is widely cited as the headline figure for periodic trust taxation, and in our experience it is the number settlors most often fail to plan around when first creating a trust.

In practice, where the trust fund remains below the nil rate band, currently £325,000, frozen until at least April 2030, the effective rate may reduce to zero, or close to it, depending on the settlor’s cumulation history. However, as asset values grow and the nil rate band remains static, trusts that were comfortably within the threshold at inception can drift into a chargeable position by the first or second anniversary.

Why the Entry Charge Calculation Should Not Be Set Aside

The rate calculated at entry is not simply a one-off cost. It establishes a reference point that feeds into every subsequent periodic and exit charge. Where the initial transfer was structured without careful attention to the settlor’s seven-year cumulation, trustees may find that the effective rate at the 10-year anniversary is higher than anticipated. In our experience, a professional review of the original trust documentation and the settlor’s IHT position at the time of settlement often uncovers calculation errors or overlooked transfers that affect the ongoing charge position. Trustees who are uncertain about their baseline figures may benefit from seeking guidance from a regulated professional before the anniversary date approaches.

Common Questions About the 10-Year Trust Charge

What is a decennial charge?

A decennial charge is simply another name for the 10-year periodic charge on relevant property trusts. The word decennial means relating to a period of ten years. HMRC imposes this charge on the 10th anniversary of the date the trust was created, and then on each subsequent 10-year anniversary, for as long as the trust holds relevant property. The term is sometimes used interchangeably with principal charge or periodic charge in professional literature.

What is the 10-year anniversary of a trust?

The 10-year anniversary is the date that falls exactly ten years after the trust was established, typically the date the trust deed was executed and the first transfer of property was made into the settlement. It is this specific date, rather than the tax year end or any other reference point, that triggers the obligation to assess and report the periodic charge to HMRC. Trustees should note that subsequent anniversaries fall every ten years from that original date, not from the date of any later additions to the trust fund.

How is the 10-year charge calculated?

The calculation follows a prescribed HMRC method. Trustees identify the value of relevant property held in the trust on the anniversary date, then perform a notional transfer using the settlor’s aggregate chargeable transfers from the seven years before the trust was created. This cumulated figure is applied against the nil rate band, £325,000 as of the current tax year, frozen until at least April 2030, to find the taxable slice. The notional tax on that slice is calculated at the lifetime rate of 20%, and the result is then multiplied by the fraction 30/40, producing an effective maximum rate of 6% on the value of relevant property. Where the trust fund falls below the available nil rate band after cumulation, the charge may reduce to nil.

How do you calculate the exit charge on a trust?

Exit charges apply when property leaves a relevant property trust between anniversary dates, for example on a distribution to a beneficiary. The exit charge rate is generally based on the rate that applied, or would have applied, at the most recent 10-year anniversary, adjusted by a fraction reflecting how many complete quarters have elapsed since that anniversary out of the 40 quarters in a 10-year period. If the exit occurs before the first 10-year anniversary, the rate is based on the notional rate applicable at the date of entry. In our experience, exit charges are often overlooked by trustees who assume that distributions are simply outside the scope of IHT once inside the trust.

How much tax does a trust have to pay?

There is no single answer, as the amount depends on the value of relevant property, the settlor’s prior transfer history, and whether any reliefs such as Business Property Relief or Agricultural Property Relief apply. As a broad guide, the maximum a discretionary trust can be charged at any 10-year anniversary is 6% of the value of relevant property above the available nil rate band. For a trust holding £500,000 with no prior cumulation and a nil rate band of £325,000, the chargeable amount would be £175,000, and the charge at the full 6% effective rate would be £10,500. Trustees should also be aware that income generated within a discretionary trust is typically subject to income tax at the trust rate of 45%, and capital gains may be subject to capital gains tax at trust rates, meaning IHT is only one of three taxes that may apply. Taking professional advice before an anniversary date is typically more cost-effective than addressing unexpected charges after the event.