Inheritance Tax Act 1984 section 71F

Calculation of tax charged under section 71E in certain cases

Section 71F sets out how to calculate the inheritance tax charge that arises under section 71E when certain events occur in relation to an age 18-to-25 trust, but only where the beneficiary (B) has already reached the age of 18 at the time of the event.

• Tax is triggered when B becomes absolutely entitled to the trust property, when B dies, or when property is paid or applied for B's advancement or benefit — provided B is aged 18 or over at the time.
• The tax is calculated using the formula: Chargeable amount × Relevant fraction × Settlement rate, which produces an effective charge of 0.75% for each complete quarter-year that has elapsed since B turned 18 (or the property entered the trust, if later), up to a maximum of 4.2% over seven quarters.
• The chargeable amount is the reduction in value of the settled property caused by the chargeable event; the relevant fraction increases by three tenths of one fortieth (i.e. 0.75%) for each complete quarter in the relevant period, ignoring any quarter throughout which the property was excluded property.
• The settlement rate is determined by reference to a hypothetical chargeable transfer using lifetime rates, taking into account the settlor's seven-year cumulative total of chargeable transfers at the date the settlement was created, and the aggregate value of the original settled property, any related settlement property, and any property added before the chargeable event.