IHT Exit Charges, Beneficiaries and Charitable Beneficiaries

[mustardfunk6]

I have a discretionary trust set up in 2014 (5 years ago). The initial value was £600,000. The trustees now wish to appoint out all the assets, 50% to charities and 50% to individual beneficiaries. I am a bit confused how to calculate the IHT exit charge. I know there is no exit charge for the charity under IHTA 1984 s76. But how do I calculate the effective rate? Is it £600,000 less £300,000 (charity exemption), so the relevant property is £300,000 less nil rate band £325,000, so the effective rate is 0%. Or is it £600,000 less nil rate band £325,000= £275,000. IHT 20%, effective rate 30% x 20/40 quarters = 1.375%. So non-charitable beneficiaries = £300,000 x 1.375% = £4125; whilst charity is £300,000 less charity exemption £300,000= £0 x 1.375% = £0 IHT.

Thanks in advance.

[AGoodman]

First things first, how many settlors are there?
If just one, how did you get the assets into the trust without a large initial charge? Did you use an exemption or relief?

[mustardfunk6]

It is a will trust. So one deceased settlor. IHT paid on death estate. The residual estate of £600,000 went into a discretionary trust. Trustees now want to wind it up five years later. 50:50 charity: individuals beneficiaries.

[mustardfunk6]

any ideas please?

[AGoodman]

The latter (some tax payable in re non-charitable half). The calculation is all based on the original value of the assets and nothing in s.76 or elsewhere changes that.

One small difference - I assume one half is no longer worth £300k but you just used this figure for ease.