Trusts at ten: a practical guide to the 10-year anniversary inheritance tax charge for Scottish private client lawyers

As a trust approaches its 10-year anniversary, trustees and their advisers must prepare for a potential inheritance tax periodic charge under section 64 of the Inheritance Tax Act 1984 ("IHTA 1984"). This charge applies to most relevant property trusts and can have significant tax implications if not properly managed.

For private client lawyers in Scotland, this milestone presents both a compliance obligation and potential tax bill to be met, and an opportunity to review the trust's structure, assets, and planning strategy. This guide sets out a practical framework for conducting a thorough review.

1. Confirm the anniversary date

Begin by identifying the exact date of the trust's 10-year anniversary. This will usually be the 10th anniversary of the date on which property first became comprised in the trust (typically the date the trust deed was signed) or the 10th anniversary of the settlor's death in the case of a will trust.

2. Valuation of trust assets

The periodic charge is based on the value of the trust's relevant property at the 10-year point:

• Obtain professional valuations for all trust assets, especially private company shares, land and property, and investment portfolios.

• Ensure valuations reflect open market value (as defined in section 160 IHTA 1984).

• Document the valuation methodology and retain reports for HMRC scrutiny.

3. Assess reliefs

Reliefs can significantly reduce or eliminate the tax charge but must be carefully considered.

Business Property Relief ("BPR")

If the trust holds business assets, BPR may be available. This can reduce the charge by up to 100% but eligibility is tightly defined:

• The business must be wholly or mainly trading.

• Passive investment activities (e.g. property letting) may disqualify the trust from relief.

• Mixed-use businesses require careful analysis of income sources and asset use.

• Gather supporting evidence such as accounts, trading records and business plans.

Agricultural Property Relief ("APR")

APR may be available where the trust holds qualifying agricultural property such as farmland, buildings or farmhouses used in agricultural operations:

• The property must be character appropriate and occupied for agricultural purposes or let under qualifying arrangements.

• Relief is typically available at 100% or 50% of the agricultural value depending on ownership and occupation. The uplift between agricultural value and market value may qualify for BPR.

• Ensure the land is genuinely used for agriculture and not for non-qualifying purposes (e.g. equestrian or leisure use). Other trading activities may qualify for BPR instead.

• Supporting documentation should include tenancy agreements, land use records, and valuation reports confirming agricultural status.

Both reliefs may be subject to HMRC scrutiny, and further restrictions will apply from 6 April 2026, so early review and professional valuation are essential. 

4. Review historic transfers and calculate the effective rate

The effective rate of tax is influenced by previous chargeable transfers into the trust. It is important to:

• Review the trust deed and history of gifts and additions.

• Identify any related settlements that may affect the availability of the nil-rate band.

• Use HMRC's IHT100 calculation tools or seek specialist advice to determine the correct rate.

5. Compliance and reporting

The tax liability will be a maximum of 6% of the trust value exceeding the available nil rate band. Where tax is due, trustees must:

• Submit an IHT100 form and relevant schedules to HMRC.

• Ensure any reliefs are clearly presented.

• Pay any tax due within six months of the anniversary date. Tax on some assets can be paid in annual instalments over 10 years. Interest will accrue on instalments unless the assets qualify for interest relief.

• Maintain detailed records for future anniversaries or exit charges.

Late filing or payment can result in interest (current rate 8%) and penalties, so early preparation is key.

Conclusion:

The 10-year anniversary is more than a tax deadline – it's a strategic moment to review the trust's purpose, performance, and compliance. Importantly, it may also present an opportunity to wind up the trust in a tax-efficient manner, potentially eliminating 10-year charge altogether, depending on the trust's structure and assets. This milestone offers a valuable chance to assess whether the trust continues to meet its objectives and whether any restructuring or termination could benefit the beneficiaries.

For smaller firms that may not regularly deal with trust taxation, navigating the complexities of 10-year anniversary returns and associated inheritance tax matters can be both time-consuming and technically challenging. At Brodies LLP, our experienced private client team is well-versed in handling these issues and can provide clear, practical advice tailored to each trust's circumstances.

If you have a trust approaching its 10-year anniversary and would benefit from support, please get in touch with one of our trust specialists. Our team would be delighted to help you ensure your clients' trusts remain compliant, tax-efficient, and fit for purpose.