Inheritance Tax Act 1984 Schedule 2 paragraph 3

Settlement without interest in possession

Schedule 2 paragraph 3 deals with how the inheritance tax rate is adjusted for discretionary trust exit charges when the tax rate table has been reduced between the relevant ten-year anniversary and the later chargeable event.

• Applies to exit charges on discretionary trusts (charges between ten-year anniversaries) arising after a reduction in the inheritance tax rate table.
• Where the exit charge rate is calculated by reference to the rate that applied (or would have applied) at an earlier ten-year anniversary, the reduced rate table must be used instead.
• If there have been multiple rate reductions between the ten-year anniversary and the exit charge, the most recent reduced rate table is the one that applies.
• The effect is that taxpayers always benefit from any reduction in inheritance tax rates when calculating exit charges, even though the reference point is an earlier ten-year anniversary.