How can I use a trust to reduce my inheritance tax bill in the UK?
You can put assets, cash, investments or even property into trust. When something is in trust then it no longer belongs to you personally and therefore is outside of your estate for inheritance tax purposes (after 7 years of setting up the trust). This means that when you die the value is not counted towards your estate value and therefore inheritance tax is not due on the value of these assets. This can be a significant saving for your beneficiaries as inheritance tax is up to 40%.
A trust is managed by trustees – generally the person who established the trust is one of the trustees so they still maintain an aspect of control over the assets.
If you die before 7 years has passed since the trust was set up then inheritance tax will still be due but at a reduced rate depending on the number of years that have passed.
What is a trust?
A trust is a legal arrangement where you give investments, property or money to another person or people (trustees) to look after for the benefit of a third party (beneficiary). The trustee has the same powers as someone that owns the assets and have the power to buy/sell, manage the trust as they see fit. The majority of trusts have more than one trustee. All trustees need to agree on any changes made to the trust or underlying investments. The beneficiary is the person who should benefit from the assets held.
When you set up a trust you can maintain control over the assets and specify exactly when the beneficiaries can receive the assets.
How do discretionary trusts work?
Discretionary trusts are a popular type of trust due to their flexibility. When you set up a discretionary trust you do not need to name all of the beneficiaries, for example you can simply name ‘all future grandchildren’ in case some have not been born yet.
To find out more about discretionary trusts, you can book a no-obligation meeting with a financial adviser at Borealis Financial Planning online or call us on 0117 456 5921.
How much is inheritance tax?
When someone dies, Inheritance Tax may be due on the value of their estate. Your estate includes your house, car, material possessions and ISAs. You have a nil rate band of £325,000. Anything above this amount may be taxed at 40%. If you leave your house to a direct descendent then you may also be eligible for the residence nil rate band of £175,000 on top of your nil rate band.
Tax treatment depends on individual circumstances and may change over time. Where tax benefits apply, their value will vary based on your personal position and the rules in force.
Who pays an inheritance tax bill?
An Inheritance Tax bill must be paid by the executors before any of the estate assets can be accessed and distributed.
Do trusts speed up probate?
Probate is the legal process of determining how a person’s assets are distributed after their death and this process can take many months. However, assets in a trust are already outside of the persons estate so they do not need to go through probate which means the beneficiaries may be able to access the assets much quicker (depending on the rules of the trust).
Seek financial advice before setting up a trust
Inheritance tax planning is complex and must be carefully considered and advised with a view taken to your overall financial position and goals.
To decide if a trust is right for you, you can book a no-obligation meeting with a financial adviser at Borealis Financial Planning online or call us on 0117 456 5921.
Trusts are not regulated by the Financial Conduct Authority.
SJP approved 27/05/2026