Inheritance Tax Act 1984 section 68

Rate before first ten-year anniversary

Section 68 sets out how to calculate the rate of inheritance tax on relevant property held in a discretionary trust when a chargeable event occurs before the trust's first ten-year anniversary.

• The tax rate is an "appropriate fraction" of the effective rate that would apply to a hypothetical chargeable transfer, calculated as 3/10 multiplied by the number of complete quarters (out of 40) since the settlement commenced until the day before the chargeable event.
• Where property was not relevant property, or was not in the settlement, for the whole period, only the quarters from when it became (or last became) relevant property in the settlement are counted.
• The hypothetical chargeable transfer is based on an aggregated value including the initial relevant property, property in related settlements, later additions of relevant property, same-day additions, and the settlor's chargeable transfers in the seven years before the settlement commenced.
• For settlements that commenced before 27 March 1974, a simplified calculation applies: the fraction is fixed at 3/10, and the hypothetical transfer value equals the amount on which the exit charge arises, with the cumulative total based on previous charges and distribution payments over the preceding ten years.

---