Are Trusts Subject to Inheritance Tax in the UK?

Yes, trusts can be subject to Inheritance Tax in the UK, but the way Inheritance Tax applies depends heavily on the type of trust, when it was created, what assets it contains and the rights of the beneficiaries.

Some trusts can face an Inheritance Tax charge when assets are first transferred into them, further charges every 10 years and charges when assets leave the trust. Other trusts are treated very differently and may instead have their assets treated as belonging to a particular beneficiary for Inheritance Tax purposes.

This means that simply putting assets into a trust does not automatically remove them from the Inheritance Tax system. In some circumstances, an incorrectly structured trust can create additional tax liabilities rather than reduce them.

The rules are particularly important following changes made in 2025 and 2026, including the move from domicile to long-term UK residence for certain Inheritance Tax purposes and new rules affecting agricultural and business property held in trusts.^{[1] [2]}

At ASL Solicitors, we advise individuals and families on trusts, wills, probate and estate planning. We are based in Rochdale and provide services to clients throughout Rochdale, Greater Manchester and surrounding areas. If you are considering creating a trust, or already have one and are unsure about its tax position, it is important to obtain advice based on the precise wording and history of the trust.

When can Inheritance Tax apply to a trust?

Inheritance Tax can potentially arise at several different stages during the lifetime of a trust. For trusts within what is known as the relevant property regime, the main occasions are:^[3]

• when assets are transferred into the trust during the settlor’s lifetime;
• on each 10-year anniversary of the trust;
• when assets leave the trust, which can create an exit or proportionate charge; and
• when somebody dies and trust property is treated as part of their estate for Inheritance Tax purposes.

Not every trust is within the relevant property regime. Bare trusts, certain qualifying interest in possession trusts, trusts for bereaved minors and qualifying disabled person’s trusts can be taxed under different rules.

What are the current Inheritance Tax rates for trusts?

As of September 2026, the standard Inheritance Tax nil-rate band is £325,000. The standard rate on a taxable estate on death is 40%, while the reduced death rate can be 36% where the relevant charitable giving conditions are satisfied.^[4]

Trust taxation uses some of the same rates, but they are applied differently.

Situation	Potential Inheritance Tax rate
Chargeable lifetime transfer into a relevant property trust	Generally 20% on the chargeable amount above the available nil-rate band
Death within seven years of a chargeable transfer into trust	Death rates can apply, potentially up to 40%, with credit normally given for lifetime IHT already paid
10-year anniversary charge	Up to 6%
Exit charge from a relevant property trust	Up to 6%, calculated proportionately
Age 18-to-25 trust exit charge	Up to 4.2%
Standard taxable estate on death	40%
Qualifying estate where the charitable giving conditions are met	36% on the qualifying component

These are maximum or headline rates. The actual amount payable may be considerably lower because of the available nil-rate band, exemptions, reliefs, previous transfers made by the settlor and the length of time assets have been held within a trust.

Inheritance Tax when putting assets into a trust

Putting assets into many types of discretionary or relevant property trust during your lifetime is normally a chargeable lifetime transfer.

For most such trusts, the value transferred is combined with other chargeable transfers made by the settlor during the previous seven years. To the extent that the total exceeds the available £325,000 nil-rate band, an immediate lifetime IHT charge can arise at 20% if the tax is paid from the transferred property.^[1]

Example: putting £500,000 into a discretionary trust

Suppose a person puts £500,000 in cash into a new discretionary trust and has made no other chargeable lifetime transfers during the previous seven years. For simplicity, assume that no exemptions or reliefs apply.

The first £325,000 would be covered by the nil-rate band. This leaves £175,000 potentially chargeable at 20%, producing an immediate Inheritance Tax liability of £35,000 where the tax is borne by the trustees from the transfer.

If the settlor personally pays the tax rather than the trustees, the calculation is more complicated because paying the tax can increase the loss to the settlor’s estate. Professional calculations should therefore be obtained before making a large settlement.

What happens if the settlor dies within seven years?

For chargeable lifetime transfers into trusts, surviving for seven years does not work in exactly the same way as it does for every outright gift.

If the settlor dies within seven years of making a chargeable transfer into a relevant property trust, the transfer is reconsidered using the death rates of Inheritance Tax. Further IHT may therefore become payable, although credit is normally given for lifetime IHT already paid.^[1]

Taper relief can reduce tax on some transfers where death occurs more than three years after the transfer. It reduces the tax payable on a chargeable gift rather than simply reducing the value of the gift.

We have covered lifetime gifting and the seven-year rule in more detail in our guide to gifts and the seven-year rule.

What is the 10-year Inheritance Tax charge on trusts?

Relevant property trusts can be subject to an Inheritance Tax charge on every 10-year anniversary of the date the settlement commenced. This is sometimes called the periodic charge or principal charge.^[5]

The maximum rate is 6%, but this does not mean every trust worth more than £325,000 automatically pays 6% of its entire value.

The calculation takes account of factors including the value of the relevant property, the available nil-rate band, chargeable transfers made before the trust was created, certain additions to the trust, related settlements and relevant distributions.

Example: a £600,000 trust at its first 10-year anniversary

Consider a simplified example where a discretionary trust is worth £600,000 immediately before its first 10-year anniversary. Assume there were no previous chargeable transfers, additions, related settlements, distributions or special reliefs.

Using a £325,000 nil-rate band leaves £275,000 above the threshold. A hypothetical lifetime tax charge at 20% would be £55,000.

£55,000 represents approximately 9.17% of the £600,000 trust fund. The 10-year rate is broadly 30% of that effective lifetime rate, producing a rate of approximately 2.75%. On £600,000, the resulting charge would be approximately £16,500.

This example is deliberately simplified. HMRC’s statutory calculation can become significantly more complicated where the settlor has created other trusts, made previous transfers or added property at different times.

What is an exit charge?

An exit charge, also known as a proportionate charge, can arise when relevant property leaves a trust or ceases to be relevant property. This includes many distributions of capital to beneficiaries.^[6]

The maximum exit charge is 6%, although the actual rate depends on the circumstances and how long the property has been within the relevant property regime.

For example, where property is distributed only a few years into a trust’s 10-year cycle, the rate will usually be lower than the rate potentially applicable immediately following a 10-year anniversary.

From 6 April 2026, changes were also made to the way exit charges are calculated where Agricultural Relief or Business Relief is involved.^[7]

How does Inheritance Tax apply to different types of trust?

HMRC recognises several broad categories of trust. The name given to a trust by a solicitor, financial adviser or product provider does not always determine its tax treatment. What matters is the legal rights created by the trust deed or will.^[8]

Type of trust	General Inheritance Tax treatment
Bare trust	The beneficiary is generally treated as owning the assets. The initial lifetime gift is normally a potentially exempt transfer rather than a chargeable transfer into the relevant property regime.
Discretionary trust	Usually within the relevant property regime, meaning entry, 10-year and exit charges can apply.
Accumulation trust	Often falls within the relevant property regime, depending on its terms and when it was established.
Interest in possession or life interest trust	Treatment depends heavily on when and how the interest was created. Some are treated as belonging to the life tenant for IHT, while others fall within the relevant property regime.
Immediate post-death interest trust	A qualifying interest in possession created on death. The trust property is generally treated as part of the life tenant’s estate for IHT purposes.
Trust for a bereaved minor	Special favourable rules can apply where statutory conditions are satisfied and the beneficiary becomes fully entitled by 18.
Age 18-to-25 trust	No standard 10-year relevant property charge, but special exit charges can arise between ages 18 and 25, with a maximum rate of 4.2%.
Qualifying disabled person’s trust	Special IHT treatment can apply, including exemption from the normal relevant property 10-year and exit charge regime while the conditions continue to be met.
Mixed trust	Different parts of the trust can be taxed under different regimes.
Settlor-interested trust	The underlying trust structure determines much of the IHT treatment. Additional problems can arise where the settlor continues to benefit from assets they have supposedly given away.
Non-resident or offshore trust	Potentially subject to UK IHT depending on the assets, the settlor’s long-term UK residence status and transitional rules.

Bare trusts and Inheritance Tax

A bare trust is one of the simplest trust structures. The trustee legally holds the asset, but the beneficiary has an absolute right to the capital and income once legally capable of taking control.

For Inheritance Tax purposes, a lifetime transfer into a genuine bare trust is normally treated as a potentially exempt transfer. If the person making the gift survives for seven years, it will generally fall outside their estate for IHT purposes.^[3]

The trust assets are effectively treated as belonging to the beneficiary, which means their value may ultimately form part of that beneficiary’s estate when they die.

Example of a bare trust

A grandparent transfers £200,000 into a bare trust for an adult grandchild. Provided this is a genuine outright gift and the grandparent does not retain a benefit, the transfer will normally be a potentially exempt transfer.

If the grandparent survives seven years, that gift will generally no longer be taken into account when calculating IHT on their estate. The £200,000 is not then subject to discretionary trust 10-year charges simply because trustees continue to hold legal title.

Discretionary trusts and Inheritance Tax

Discretionary trusts are among the most important types of trust for IHT purposes.

Rather than one beneficiary having an absolute entitlement to particular property, the trustees normally have discretion over matters such as which beneficiaries receive funds, how much they receive and when distributions are made.

Most modern discretionary trusts are within the relevant property regime. They can therefore face an initial lifetime charge, 10-year anniversary charges and exit charges.

Discretionary trusts can be extremely useful for controlling how family wealth is managed, protecting younger beneficiaries and dealing with changing family circumstances. However, they should not be viewed as a simple way of making assets automatically exempt from IHT.

Interest in possession and life interest trusts

An interest in possession trust usually gives a beneficiary an immediate right to trust income or to use an asset during their lifetime. That person is often called the life tenant.

These trusts are particularly common in wills. For example, somebody may leave their home to trustees while allowing their surviving spouse to live in the property for the rest of their life, after which the property passes to their children.

The Finance Act 2006 made major changes to how these trusts are treated for Inheritance Tax. Interests created before 22 March 2006 can be treated differently from those created after that date.^[9]

For an interest created from 22 March 2006 onwards, only certain interests qualify for treatment where the trust property is treated as belonging to the life tenant’s estate. These include an immediate post-death interest, a disabled person’s interest and certain transitional serial interests. Other post-2006 interest in possession trusts can fall into the relevant property regime.

Property protection trusts and spouse life interest trusts

A “property protection trust” is a commonly used estate planning description rather than a separate category of trust in the Inheritance Tax Act.

Many property protection trusts created by wills operate as life interest trusts. A common arrangement allows a surviving spouse or civil partner to live in a property for life, while ultimately preserving the capital for children.

Where the arrangement creates a qualifying immediate post-death interest for a surviving spouse or civil partner, spouse exemption may be available on the first death. The value of the trust property will then normally be treated as forming part of the surviving spouse or civil partner’s estate when their qualifying interest ends on death.

The exact drafting is important. A discretionary trust that merely includes a spouse among a large group of possible beneficiaries does not automatically receive the same treatment.

Does the residence nil-rate band apply to trusts?

The residence nil-rate band is currently up to £175,000, in addition to the ordinary £325,000 nil-rate band, where the relevant requirements are satisfied. It is generally available when a qualifying home passes on death to direct descendants. It is tapered for estates worth more than £2 million.^[10]

The residence nil-rate band is not an additional £175,000 allowance for calculating ordinary 10-year or exit charges on relevant property trusts.

However, a home passing through certain qualifying trusts on death can still potentially qualify. Whether it does depends on whether HMRC regards the direct descendant as “closely inheriting” the property.

For example, a qualifying life interest or immediate post-death interest arrangement can produce a different result from a discretionary will trust under which children do not become entitled to the home at the death in question.

Trusts for bereaved minors

The Inheritance Tax Act 1984 contains special rules for trusts for bereaved minors. These are generally trusts created following the death of a parent where the child becomes absolutely entitled to the trust property by the age of 18.^[11]

Where all of the statutory conditions are satisfied, the normal 10-year and exit charge regime applying to discretionary trusts does not apply in the same way.

The precise conditions matter. Simply calling a trust a “children’s trust” does not make it a statutory bereaved minor trust.

Age 18-to-25 trusts

An age 18-to-25 trust can be used in certain circumstances where a deceased parent wants a bereaved child to inherit at an age no later than 25 rather than becoming fully entitled at 18.

These trusts were introduced by the Finance Act 2006 and are governed principally by sections 71D to 71G of the Inheritance Tax Act 1984.^[12]

There is no ordinary 10-year anniversary charge. However, special IHT charges can arise when property leaves the trust after the beneficiary turns 18 and before they become fully entitled.

The maximum rate is 4.2%, reflecting the fact that the maximum period between ages 18 and 25 is seven years.

Trusts for disabled or vulnerable beneficiaries

Special tax treatment can apply to qualifying trusts for disabled people. These arrangements are particularly important because imposing the standard discretionary trust tax regime could otherwise create significant costs for families trying to provide long-term financial support.

Where the statutory conditions are satisfied, a qualifying disabled person’s trust can be outside the ordinary relevant property regime, meaning the normal 10-year and exit charges do not apply while the conditions continue to be met.^[13]

A lifetime gift into a qualifying disabled person’s trust can also be treated as a potentially exempt transfer, meaning the donor normally needs to survive seven years for the transfer to become fully exempt.

On the disabled beneficiary’s death, property held for them may be treated as part of their estate for Inheritance Tax purposes.

Personal injury trusts and Inheritance Tax

A personal injury trust is not a separate category of trust for Inheritance Tax purposes simply because the money came from a compensation claim.

A personal injury trust may, for example, be structured as a bare trust or another form of trust. Its IHT treatment therefore depends on the legal structure used, who contributed the funds and the beneficiary’s rights.

This is separate from the rules under which correctly structured personal injury trusts can protect compensation when entitlement to certain means-tested benefits is assessed.

We provide separate advice on personal injury trusts where compensation needs to be appropriately protected and managed.

Settlor-interested trusts and gifts with reservation of benefit

A settlor-interested trust is broadly a trust under which the person who created it, or in some cases their spouse or civil partner, can benefit.

For IHT, it is important to distinguish the label “settlor-interested” from the underlying trust structure. A settlor-interested discretionary trust can still be within the relevant property regime.

There is also a major risk where a person transfers property into trust but continues to enjoy it. The gift with reservation of benefit rules can mean the property is still treated as part of the settlor’s estate on death.^[1]

A common example is transferring a home into trust while continuing to occupy it without the arrangement satisfying the relevant legal and tax conditions. Creating the trust does not, by itself, remove the house from the settlor’s estate.

Mixed trusts

A mixed trust contains different parts with different beneficiary rights. For example, one part of a fund may be held on an interest in possession trust while another part is held on discretionary terms.

Each part can therefore need to be analysed under the tax regime that applies to it. It would be incorrect to assume the whole trust is subject to a single IHT treatment simply because it is contained within one trust document.

Accumulation trusts and older accumulation and maintenance trusts

An accumulation trust allows trustees to retain income and add it to the trust capital rather than distributing it immediately.

Modern accumulation and discretionary arrangements will commonly fall within the relevant property regime.

Older accumulation and maintenance trusts require more careful analysis. The Finance Act 2006 substantially changed the regime, and some older trusts received transitional treatment or were capable of moving into the statutory age 18-to-25 regime.

The creation date and full history of an older family trust should therefore be checked before calculating an IHT liability.

Non-resident and offshore trusts

Major changes to the taxation of offshore trusts took effect on 6 April 2025.

For IHT purposes, the previous domicile and deemed domicile system was replaced by a regime based principally on long-term UK residence. Broadly, a person can become long-term UK resident after being UK resident for at least 10 of the previous 20 tax years, although detailed rules apply when somebody leaves or returns to the UK.^[2]

For foreign assets held in trust, whether property is excluded property can now depend on the settlor’s long-term residence position at the relevant time. In broad terms, while a living settlor is not long-term UK resident, qualifying foreign settled property can potentially be excluded property. When the settlor is long-term UK resident, foreign assets they settled can come within the UK trust IHT regime.

There are important transitional protections for some trusts established before the reforms, including rules applying where foreign property was already excluded property on 30 October 2024. For certain qualifying former excluded property trusts, relevant property charges on specified foreign property are subject to a £5 million cap during each 10-year cycle.^[14]

Offshore trusts are one area where professional advice is particularly important. Trustee residence, settlor residence, asset location, the date assets entered the trust and historic domicile status can all be relevant.

Inheritance Tax on trusts containing businesses or agricultural property

The treatment of agricultural and business property changed significantly on 6 April 2026.

For qualifying Agricultural Relief and Business Relief property, 100% relief is now generally subject to a £2.5 million allowance. Qualifying property above the available allowance generally receives relief at 50%. Separate rules determine how this allowance is applied to trusts.^[7]

For relevant property trusts, the treatment depends partly on when the trust was established and whether it already contained qualifying agricultural or business assets by 30 October 2024.

For trusts created after that date, or older trusts which did not hold qualifying 100% relievable property at that point, the available trust allowance can also be affected by other qualifying property settled by the same settlor. It should not therefore be assumed that creating several trusts provides each one with a completely independent £2.5 million allowance.

The reforms also changed Business Relief for certain shares traded on markets such as AIM, which now generally receive 50% relief rather than 100%.^[15]

Anyone with a family business, farm, investment company or agricultural estate held in trust should review their arrangements under the rules now in force.

Are charitable trusts exempt from Inheritance Tax?

Gifts made directly to qualifying charities can benefit from a complete IHT exemption, and qualifying charitable giving on death can also reduce the applicable estate rate from 40% to 36%.

However, the rules surrounding charitable trusts changed in 2026.

Finance Act 2026 amended section 23 of the Inheritance Tax Act 1984. For relevant lifetime transfers from 26 November 2025 and transfers on death where the death occurs on or after 6 April 2026, property is no longer automatically treated as given to charity merely because it is held on trust for charitable purposes.^[16]

The recipient arrangement needs to satisfy the relevant statutory requirements, and transitional protection exists in certain circumstances involving older qualifying interests in possession.

This makes it particularly important to take advice before attempting to establish a charitable trust primarily for tax purposes.

What about life insurance trusts?

Life insurance policies are frequently written in trust so that policy proceeds can be paid to trustees rather than becoming part of the deceased policyholder’s probate estate.

However, “life insurance trust” is a description of the arrangement rather than a separate IHT category. The policy may, for example, be held under bare or discretionary terms.

The IHT treatment can therefore depend on the structure of the trust, when the policy was placed into trust, the premiums paid and whether the settlor retained any rights.

A correctly arranged policy trust can be extremely useful for estate planning, but writing a policy in trust does not mean that every possible IHT charge connected with the trust disappears.

What about loan trusts and discounted gift trusts?

Loan trusts and discounted gift trusts are commonly marketed estate planning arrangements, but neither is a standalone statutory category for Inheritance Tax.

They normally use an underlying bare or discretionary trust combined with a particular financial arrangement.

With a loan trust, for example, growth on invested assets may potentially accrue outside the lender’s estate, while the outstanding loan remains an asset of that person’s estate. With a discounted gift trust, part of the value transferred may potentially be discounted to reflect retained rights, subject to the structure and relevant actuarial calculations.

Because these arrangements can involve both trust law and regulated financial products, legal and financial advice should normally be coordinated before they are established.

Do multiple trusts each receive a £325,000 nil-rate band?

Creating several trusts does not normally mean that a person can multiply their £325,000 IHT nil-rate band indefinitely.

HMRC’s calculations take account of previous chargeable transfers and can also take account of related settlements and same-day additions. Legislative changes have significantly restricted historic planning involving numerous small “pilot trusts”.

Where multiple trusts exist, their creation dates, additions, values and relationship with one another should be reviewed together rather than each trust being considered in isolation.

What happens to a trust when a beneficiary dies?

The answer depends on the beneficiary’s rights.

If a beneficiary has a qualifying interest in possession, such as certain life interests, the trust property can be treated as part of their estate for IHT when they die.

By contrast, a beneficiary of a discretionary trust does not normally own the entire trust fund merely because they are included within the class of potential beneficiaries. Their death therefore does not automatically cause the whole discretionary trust fund to become part of their estate.

Bare trust assets are generally treated as belonging to the beneficiary and can therefore form part of their estate.

Can putting your house in trust avoid Inheritance Tax?

Not necessarily, and homeowners should be particularly cautious about schemes promoted on the basis that simply transferring a property into trust will remove it from their estate.

If you transfer your home into trust but continue to live in and benefit from the property, the gift with reservation rules can result in the property remaining within your estate for IHT purposes.

There can also be Capital Gains Tax, Stamp Duty Land Tax, trust taxation and residence nil-rate band implications depending on the arrangement.

A trust can be an appropriate tool for controlling what happens to a family home, particularly under a carefully drafted will, but tax avoidance should never be assumed merely because legal ownership has been transferred to trustees.

Are assets in a trust always outside your estate?

No. This is one of the most important misconceptions about trusts.

Some trust property is treated as belonging to a beneficiary for IHT purposes. Other trust property sits within the relevant property regime. Assets may also continue to be treated as belonging to a settlor where the gift with reservation rules apply.

The tax position depends on the beneficial rights created, not simply whose name appears on the legal title.

Other taxes on trusts

Inheritance Tax is only one part of trust taxation. Depending on the structure and assets involved, trustees, settlors or beneficiaries may also need to consider Income Tax and Capital Gains Tax.

Many trusts must also be registered with HMRC’s Trust Registration Service even where no immediate Inheritance Tax liability exists, although a number of specific exclusions apply.

This is another reason why a trust should normally be considered as part of a wider estate plan rather than solely as an IHT arrangement.

The main UK laws governing trusts and Inheritance Tax

The principal legislation is the Inheritance Tax Act 1984. Among other matters, it establishes the rates of IHT, the relevant property regime, periodic charges, exit charges, treatment of interests in possession and special regimes for certain trusts.

The Finance Act 2006 made major changes to trust taxation from 22 March 2006. Most newly created discretionary trusts and many new interest in possession arrangements were brought within the relevant property regime, while special regimes were introduced for bereaved minor and age 18-to-25 trusts.

The Finance Act 2025 introduced the long-term UK residence framework for IHT from 6 April 2025, replacing the previous domicile-based approach in many situations and substantially changing the treatment of foreign assets held in trust.

The Finance Act 2026 contains further important amendments, including the new Agricultural Relief and Business Relief framework and changes to charitable transfers.

The Trustee Act 2000 is also important to trustees in England and Wales because it governs matters including trustees’ investment powers, duties of care and use of agents. It does not determine the IHT rate itself, but it forms part of the wider legal framework under which many trusts are administered.

Trust law differs in some respects between England and Wales, Scotland and Northern Ireland, although Inheritance Tax is a UK tax. Anyone dealing with a trust governed by Scottish or Northern Irish law should obtain advice that takes account of the relevant jurisdiction.

When does Inheritance Tax on a trust need to be reported and paid?

Trustees may need to submit the relevant IHT100 account and supporting schedules to HMRC following a chargeable event.

For transfers into or out of a trust, IHT is generally due no later than six months after the end of the month in which the transfer occurred. For a 10-year anniversary charge, payment is generally due within six months after the anniversary.^[17]

Trustees should therefore keep accurate records of valuations, distributions, additions to the trust, previous tax calculations and the original settlement documentation.

Should you set up a trust to reduce Inheritance Tax?

A trust can form part of effective estate planning, but it should rarely be created solely because somebody has heard that “trusts avoid inheritance tax”.

Before establishing one, important matters to consider include:

• who should benefit from the assets and when;
• whether you need to retain access to or use of the assets;
• the immediate Inheritance Tax consequences of transferring the assets;
• future 10-year, exit, Income Tax and Capital Gains Tax liabilities; and
• whether a trust is genuinely more appropriate than a will, outright gift or another estate planning arrangement.

A well-drafted trust can provide valuable control and protection. An unsuitable trust can create administration, restrictions and tax liabilities that were never intended.

Get advice about trusts and Inheritance Tax

Trust taxation is highly dependent on individual circumstances. Two trusts holding assets of exactly the same value can have completely different Inheritance Tax consequences because they were created at different times or give beneficiaries different legal rights.

At ASL Solicitors, we specialise in trusts, wills, probate and estate planning. We can review your assets and family circumstances, explain the tax and legal implications of different trust structures and help ensure any trust is drafted to achieve the purpose you intend.

If you already have a trust, we can also help you understand its terms and how it fits into your wider estate planning.

We are based in Rochdale and provide trusts and estate planning services to clients in Rochdale, Greater Manchester and surrounding areas. Get in touch with us to discuss your circumstances.

Frequently Asked Questions

Are trusts exempt from Inheritance Tax in the UK?

No. Some trusts receive favourable or exempt treatment, but many trusts are subject to Inheritance Tax. Relevant property trusts can face charges when assets enter the trust, at 10-year anniversaries and when assets leave.

What is the Inheritance Tax rate on a trust?

For a lifetime transfer into many relevant property trusts, the headline rate is 20% on the amount above the available nil-rate band. Ten-year and exit charges can be up to 6%. The exact rate depends on the type and history of the trust.

How much can I put into a trust without paying Inheritance Tax?

The standard nil-rate band is £325,000 in the 2026/27 tax year. However, chargeable transfers made during the previous seven years can reduce the amount available, so £325,000 is not automatically available for every new trust.

Do trusts pay Inheritance Tax every 10 years?

Relevant property trusts can be subject to a charge on every 10-year anniversary. Not all trusts fall within this regime. Bare trusts and certain qualifying special trusts are treated differently.

Is the 10-year trust tax always 6%?

No. Six per cent is the maximum rate. The actual effective rate can be lower depending on the trust’s value, the available nil-rate band and other factors included in the statutory calculation.

Do beneficiaries pay Inheritance Tax when they receive money from a trust?

For a relevant property trust, an IHT exit charge may be payable when capital is distributed, but the tax liability is generally a trust liability rather than an ordinary 40% inheritance tax bill charged directly to the beneficiary simply because they receive the money.

Does a bare trust pay 10-year Inheritance Tax charges?

Generally no. A genuine bare trust is treated differently because the beneficiary is regarded as owning the trust assets for tax purposes.

Are discretionary trusts subject to Inheritance Tax?

Yes, most modern discretionary trusts are within the relevant property regime and can be subject to entry charges, 10-year anniversary charges and exit charges.

Can I put my house in trust to avoid Inheritance Tax?

Putting your home into trust does not automatically remove it from your estate. If you continue to live in or benefit from the property, the gift with reservation rules may mean it remains taxable as part of your estate.

Does the seven-year rule apply to trusts?

It can, but the treatment depends on the trust. A transfer into a bare trust or qualifying disabled person’s trust can be a potentially exempt transfer, while a transfer into most discretionary trusts is immediately chargeable and is reconsidered if the settlor dies within seven years.

Do life interest trusts pay Inheritance Tax?

They can. Some qualifying life interests are treated as forming part of the life tenant’s estate, while other interest in possession trusts can fall within the relevant property regime. The date and circumstances in which the interest was created are important.

Are trusts for disabled people subject to the 10-year charge?

A qualifying disabled person’s trust can receive special IHT treatment and is generally outside the ordinary 10-year relevant property charge while the statutory conditions continue to be satisfied.

Are offshore trusts subject to UK Inheritance Tax?

They can be. Since 6 April 2025, the treatment of foreign trust assets depends substantially on the settlor’s long-term UK residence status, as well as the nature and location of the assets and relevant transitional provisions.

Can I have more than one trust to get several £325,000 allowances?

You should not assume so. Previous transfers, related settlements and same-day addition rules can affect the calculation. Creating multiple trusts does not provide a straightforward way to multiply the nil-rate band.

Should I get legal advice before creating a trust?

Yes. The choice of trust can affect Inheritance Tax, Capital Gains Tax, Income Tax, control of the assets and the rights of your beneficiaries. At ASL Solicitors, we can advise on the most appropriate structure based on your circumstances.

This article provides general information on the law and tax rules as at September 2026. It is not a substitute for personalised legal, tax or financial advice.