Advanced Taxation (UK) · Inheritance tax: transfers to and from trusts and property within trusts

Periodic and Exit Charges on Relevant Property Trusts

Updated 11 October 2026 · Fact-checked

The periodic charge is inheritance tax on a relevant property trust every ten years, and the exit charge applies when property leaves the trust between those dates. Both use a rate of up to 30% of an effective lifetime rate, found by taxing a hypothetical transfer at 20% above the available nil rate band.

Understand Periodic and Exit Charges on Relevant Property Trusts

A relevant property trust is the main type of trust that suffers ongoing IHT. A discretionary trust is the usual example. The trust is not treated as part of anyone's estate. Instead, the trustees pay tax on the trust's own ten-year anniversaries and when assets leave it.

The periodic charge (ten-yearly charge) arises on each tenth anniversary of the date the trust was created. It applies to the value of the relevant property in the trust immediately before the anniversary. The exit charge arises when relevant property stops being relevant property, for example when trustees pay capital to a beneficiary. There is normally no exit charge in the first three months after the trust is created or after a ten-year anniversary.

Both charges use the same idea. You invent a hypothetical transfer, tax it at the lifetime rate of 20% above the nil rate band, and work out the effective rate (tax ÷ transfer). The actual charge is at 30% of that effective rate. The trust is never taxed at the full 20% or 40%. The effective rate is always below 20%, so the rate on the ten-year charge is always below 6% (30% × 20%).

The nil rate band is £325,000. It is reduced by chargeable lifetime transfers the settlor made in the seven years before the trust was created. The residence nil rate band is not available. Taper relief does not apply to these charges. Reliefs such as business property relief or agricultural property relief reduce the value of the relevant property that is charged.

The hypothetical transfer can be affected by more than this. For a later periodic charge, the working also takes account of amounts that left the trust and suffered exit charges in the previous ten years. Related settlements also affect the working. The examples on this page assume there are none, and you should state that assumption in your answer.

The exit charge rate depends on timing. Before the first ten-year anniversary, it uses the rate calculated at creation. After a ten-year anniversary, it uses the rate that was charged at that anniversary. In both cases it is scaled by the number of complete quarters since the start of the period, divided by 40.

Key rules to remember

Effective rate: Effective rate = (IHT on hypothetical transfer ÷ hypothetical transfer) × 100; Tax the hypothetical transfer at the 20% lifetime rate above the available nil rate band of £325,000, less the settlor's chargeable transfers in the 7 years before creation.
Periodic charge rate: Periodic rate = 30% × effective rate; Apply it to the value of relevant property immediately before the anniversary, after deducting reliefs such as BPR or APR.
Periodic charge: Periodic charge = value of relevant property × periodic rate; Payable by the trustees from the trust fund. Charged every ten years from creation.
Exit charge before the first ten-year anniversary: Exit charge = amount leaving × (30% × effective rate at creation) × complete quarters ÷ 40; Count only complete quarters since creation. The hypothetical transfer is the value of the property put into the trust at creation (assuming no related settlements). Use the nil rate band at the date of the exit, less the settlor's chargeable transfers in the 7 years before creation.
Exit charge after a ten-year anniversary: Exit charge = amount leaving × (rate charged at last periodic charge) × complete quarters since last ten-year anniversary ÷ 40; The rate is the actual periodic rate, not the effective rate.
Grossing up: Gross amount = net amount ÷ (1 − exit rate); Needed when the trustees bear the tax, because the amount leaving is then the net amount. If the beneficiary bears the tax, the amount leaving is already the gross figure, so do not gross up.
Lifetime rate and nil rate band: Lifetime rate 20%; nil rate band £325,000; Given in the ATX-UK tax tables. The 40% death rate is not used in the effective rate working.

How to solve Periodic and Exit Charges on Relevant Property Trusts questions

Use this method for any periodic or exit charge question. Identify which charge it is first. Then work out the rate before you apply it.

1Identify the event. A ten-year anniversary means a periodic charge. Property leaving the trust between ten-year anniversaries means an exit charge. Check the date is not within three months of creation or a ten-year anniversary.
2Confirm the property is relevant property. Remove assets that are outside the regime, and deduct any business or agricultural property relief from the value.
3Find the starting nil rate band: £325,000 less the settlor's chargeable transfers in the 7 years before the trust began. Test the dates: a transfer counts only if it falls within 7 years before creation. Do not use the death rate or taper relief.
4Calculate the effective rate. Tax the hypothetical transfer at 20% above the available nil rate band, divide by the transfer, and multiply by 30% to get the rate for the charge.
5For a periodic charge, apply the rate to the value of relevant property immediately before the ten-year anniversary.
6For an exit charge, count complete quarters since creation or the last ten-year anniversary. Multiply the amount leaving by the rate × quarters ÷ 40. Use the creation rate before the first ten-year anniversary and the last periodic rate afterwards.
7Decide who bears the tax. If the trustees pay it out of the remaining fund, the amount leaving is the net amount, so gross it up and calculate the charge on the gross amount. If the beneficiary bears the tax, the amount leaving is already the gross amount, so do not gross up.
8State the answer to the nearest £, show each working, and add a short note of any assumption you made, such as no related settlements.

Quickest way: Rate first, then apply

When to use it: Use this when the question gives a simple trust with no additions and you must produce the charge quickly.

Write down the available nil rate band: £325,000 less the settlor's 7-year chargeable transfers before creation.
Deduct the nil rate band from the transfer value. Multiply the excess by 20%. Divide by the transfer value. Multiply by 30%.
Periodic charge: multiply the value of relevant property by that rate.
Exit charge: multiply the amount leaving by that rate, then by complete quarters ÷ 40.
Check the rate is below 6%. If it is not, check you used 20% and not 40%, and that you applied the 30%.

Common mistakes in Periodic and Exit Charges on Relevant Property Trusts

Using the 40% death rate in the effective rate working
Students link IHT with 40% and forget that the hypothetical transfer is a lifetime transfer.
Fix: Always use 20% for the hypothetical transfer. The 40% rate is for the death estate.
Forgetting to multiply the effective rate by 30%
The effective rate looks like the answer once calculated.
Fix: Write 'rate = 30% × effective rate' as a line in every answer. The periodic rate must be below 6%. If it is not, check you used 20% not 40% and applied the 30%.
Counting part quarters in the exit charge
Students count months or days and divide by 3 loosely.
Fix: Count only complete quarters, each of three months. Show the start date and the exit date.
Ignoring the settlor's earlier chargeable transfers
The question mentions them in the background and they are treated as irrelevant.
Fix: Deduct chargeable transfers in the 7 years before creation from the £325,000 nil rate band. Check the date of each one. PETs are not included unless they became chargeable.
Applying taper relief or the residence nil rate band
These are used in other IHT questions, so they come to mind automatically.
Fix: Neither applies to periodic or exit charges. The only reduction in value comes from reliefs such as BPR and APR.
Using the creation rate after a ten-year anniversary
Students stay with the first calculation and do not update it.
Fix: After a periodic charge, the exit charge uses the rate actually charged at the ten-year anniversary and counts quarters from that anniversary.

Worked examples

Example 1

A discretionary trust was created on 10 June 2015 with cash. The settlor made chargeable lifetime transfers of £75,000 in the seven years before that date. There were no related settlements. Immediately before the ten-year anniversary on 10 June 2025, the trust held relevant property worth £500,000, with no reliefs available. Calculate the periodic charge.

Show the solution

Available nil rate band = £325,000 − £75,000 = £250,000.
Hypothetical transfer = £500,000. Excess over the nil rate band = £500,000 − £250,000 = £250,000.
Tax at 20% = £250,000 × 20% = £50,000.
Effective rate = £50,000 ÷ £500,000 = 10%.
Periodic rate = 30% × 10% = 3%.
Periodic charge = £500,000 × 3% = £15,000.

Answer: The periodic charge is £15,000, payable by the trustees.

Example 2

A settlor created a discretionary trust on 1 March 2023 by transferring £300,000 of cash. The settlor had made a chargeable lifetime transfer of £100,000 in 2021. There were no related settlements. On 20 January 2026 the trustees paid £60,000 to a beneficiary, and the trustees bear the tax. Calculate the exit charge.

Show the solution

The exit is before the first ten-year anniversary (1 March 2033), so the rate is based on the position at creation.
The 2021 transfer falls within seven years before 1 March 2023, so it is deducted. Available nil rate band = £325,000 − £100,000 = £225,000.
Hypothetical transfer = £300,000, the value of the cash put into the trust at creation (no related settlements). Excess = £300,000 − £225,000 = £75,000.
Tax at 20% = £75,000 × 20% = £15,000. Effective rate = £15,000 ÷ £300,000 = 5%.
Rate for the charge = 30% × 5% = 1.5%.
Complete quarters from 1 March 2023 to 20 January 2026: 34 complete months, which is 11 complete quarters (33 months, to 1 December 2025).
Exit rate = 1.5% × 11 ÷ 40 = 0.4125%.
The trustees bear the tax, so the £60,000 paid to the beneficiary is the net amount. Gross amount = £60,000 ÷ (1 − 0.004125) = £60,248.53.
Exit charge = £60,248.53 × 0.4125% = £248.53, which is £249 to the nearest £. Check: £60,248.53 − £248.53 = £60,000 net to the beneficiary.

Answer: The exit charge is £249, paid by the trustees from the trust fund.

Exam tips

Show the rate calculation as a separate working. Marks are available for each step even if one input is wrong.
Write the dates and the number of complete quarters. The marker needs to see how you counted them.
Read the question for who bears the tax. If the trustees do, the amount leaving is the net amount, so gross it up before you apply the rate. If the beneficiary does, the amount leaving is already the gross figure.
Use the tax tables provided for £325,000, 20% and the 7-year rule. Do not rely on memory for rates.
Add a short comment on the commercial effect, for example that BPR on trust assets cuts the charge, because professional skills marks reward application to the scenario.

Practice questions from Inheritance tax: transfers to and from trusts and property within trusts

Periodic and Exit Charges on Relevant Property Trusts: frequently asked questions

What is the difference between a periodic charge and an exit charge?

The periodic charge is a tax on the value of relevant property in the trust on each ten-year anniversary. The exit charge applies when property leaves the trust between anniversaries, or stops being relevant property. Both use up to 30% of the effective lifetime rate.

How do you calculate the ten-year anniversary charge?

Find the available nil rate band, tax the hypothetical transfer at 20% above it, and divide by the transfer to get the effective rate. Multiply that by 30% and apply it to the value of relevant property before the anniversary.

Is there an exit charge in the first three months?

Normally no. There is no exit charge on property leaving the trust within three months of its creation or of a ten-year anniversary. After that, the charge is based on complete quarters.

Do business property relief and agricultural property relief apply to these charges?

Yes, where the property qualifies. The relief reduces the value of the relevant property that is charged, so the charge falls. The relief conditions must be met at the date of the charge.