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

Hugo gave a farm to a discretionary trust eight years ago. The farm qualified for 100% agricultural property relief (APR). The trust now reaches its tenth anniversary. The farm is worth £900,000 and is still farmed by a tenant under a qualifying tenancy. The relevant property trust has no other assets. Which statement is correct about the periodic charge?

If the agricultural conditions are still met, 100% APR reduces the farm's value for the ten-year anniversary charge to nil, so no periodic charge arises. The farm remains relevant property, but relief reduces the value charged. Lifetime rates are not applied to the unrelieved £900,000.

  1. AThe farm is relevant property, but APR at 100% can reduce its value for the periodic charge if the conditions are met, so no tax arisesCorrect
  2. BNo periodic charge arises because APR assets are excluded property
  3. CThe charge is 6% of £900,000 because APR is not available to trusts
  4. DThe charge is at the 40% death rate on £900,000

Explanation

Property in a relevant property trust is within the ten-year charge, but APR (and BPR) can reduce the value of qualifying assets. If the conditions for relief at 100% are satisfied at the anniversary, the value for the periodic charge is nil, so no tax arises. APR does not make the property excluded property; it simply reduces the value charged.

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