Trust Inheritance Tax Exit Charges: Changes from 6 April 2026
Katriona McEwan · Posted on: February 25th 2026 · read
The Finance Act 2025 reforms the way the effective rate of tax is calculated for trust exit charges between ten-year anniversaries.
From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be ignored in the effective rate calculation, removing the inconsistency between charges in the first ten-years (which already excluded reliefs) and those between anniversaries (which previously included them).
Background: Trust Charges and Effective Rate
Relevant property regime: Discretionary trusts and other relevant property trusts face IHT charges at two points:
Ten-year anniversaries (the “periodic charge”), based on the value of trust assets at the relevant date.
Exits between anniversaries (the “exit charge”), calculated using the effective rate of tax derived from the last ten-year charge and applying to the assets being appointed out of the trust (pro-rated for length of time since creation or last ten-year anniversary).
Reliefs in play: APR and BPR have long reduced the taxable value of agricultural and business assets, often to nil. However, the way these reliefs were factored into effective rate calculations created a mismatch.
The Pre-2025 Position
First ten years: On exits in the first ten years when calculating the effective rate of tax to apply to non-relievable appointments APR and BPR were ignored resulting in an effective rate of IHT of up to 6%.
Between anniversaries: After the first ten years, APR and BPR were included in the effective rate calculation and so if only APR/BPR assets were held, or non-qualifying assets were less than the trust’s nil rate band, the effective rate of tax for the following ten years would be 0%.
This meant that if non-BPR assets were distributed before the first ten-year anniversary, the effective rate of IHT could be higher than that which would apply post the ten-year charge.
This is clearly inconsistent as the same type of asset could trigger tax in the first decade but escape it in the second, depending purely on timing.
Finance Act 2025 Reform
"From April 2026, APR and BPR are ignored in all effective rate calculations, whether before the first ten-year anniversary or between anniversaries. This means distributions of non-APR/BPR assets will now be treated consistently across the trust life cycle.
Trustees can no longer rely on reliefs to reduce exit charges between anniversaries as the effective rate will continue to reflect the gross value of assets, not their relieved value, after the first ten-year anniversary."
A practical example:
A trust held only £750,000 of BPR shares on the last ten-year anniversary. These have been sold and cash is now held. The effective rate of IHT on the distribution of the cash will differ depending on whether this is appointed before or on/after 6 April 2026 as follows:
| Pre 6 April 2026 | Post 5 April 2026 | ||
|---|---|---|---|
| Trust Assets | BPR Shares | 750,000 | 750,000 |
| Less BPR | (750,000) | 0 | |
| Less Nil Rate Band | (325,000) | (325,000) | |
| Chargeable value | 0 | 425,000 | |
| Effective Rate of IHT | 0.00% | 3.40% | |
| IHT on cash £1,000,000* | 0 | £34,000 | |
| *To be pro-rated for the number of complete quarters since the last ten-year anniversary. | |||
What do Trustees need to be thinking about now?
The Finance Act 2025 closes a technical gap in the relevant property regime. By excluding APR and BPR from effective rate calculations at all stages, it ensures that trust exits are taxed consistently, regardless of timing.
- Trustees must now plan distributions with the knowledge that reliefs will not mitigate exit charges, reinforcing the importance of careful estate and trust planning in light of the wider APR/BPR reforms.
- Trustees need to be aware that for exits post 5 April 2026 the effective rate of tax will be calculated ignoring APR and BPR at the previous ten-year anniversary so if non-relievable assets are being appointed out of a trust (or relievable in excess of the 100% allowance) the effective rate of tax will need to be recalculated to ensure the correct IHT liability is assessed.
- If non-BPR APR assets are now held, trustees may wish to consider if a distribution pre-6 April 2026 is appropriate to mitigate the IHT charge.
- These changes may also result in the need for share valuations for the prior ten-year date as historically reasonable estimates could be used where 100% APR/BPR was available as it would not affect the tax charge but now it could affect the IHT on a future distribution, adding to the administrative burden of trustees.
How can MHA help?
At MHA, we can review the IHT position of the trust and advise on the likely charges on a distribution from the trust in advance, enabling trustees to prepare for the tax charge arising.
Our in-house Corporate Finance team can also assist, providing share valuations where required.
As a trustee, it is crucial to be aware of significant tax obligations that may affect your trust. To further understand the nuances of the Ten-Year Charge and prepare accordingly to help mitigate potential tax liabilities, please read our insight "Is Your Trust Approaching A 10 Year Charge?".
