Tax & estate planning guide
Inheritance Tax and trusts: the basics
A trust is a legal arrangement in which trustees hold and manage assets for beneficiaries. Trusts can help control how wealth is held or passed on, but they are not a simple way to make Inheritance Tax disappear.
The structure
A trust separates legal control from the people intended to benefit.
There are normally three key roles. The settlor puts assets into the trust. The trustees become responsible for managing the trust property. The beneficiaries are the people who can benefit from it under the trust terms.
Settlor
The person who creates the trust and transfers assets into it.
Trustees
The people or organisation legally responsible for holding and managing trust assets.
Beneficiaries
The people or class of people who may receive income, capital or other benefits.
Trust deed
The legal document can set out the trustees' powers and how beneficiaries may benefit.
Estate planning
Trusts are often about control and protection as much as tax.
A trust may be used to hold assets for children or other beneficiaries who should not receive them outright immediately, to provide flexibility over future distributions, or as part of arrangements around life insurance and estate planning.
It is whether the legal control, beneficiary arrangements, access restrictions, administration and tax treatment suit the objective.
Different rules
Not all trusts are taxed in the same way.
UK tax rules recognise different trust structures. Examples include bare trusts, interest-in-possession trusts and discretionary trusts. Their legal and tax treatment can differ significantly.
A discretionary trust generally gives trustees discretion over which beneficiaries receive benefits, when and how much, within the terms of the trust. A bare trust generally gives the beneficiary an immediate and absolute entitlement to the trust assets, subject to the legal rules.
The appropriate structure should be established with suitable legal and tax advice rather than chosen from a generic description.
Inheritance Tax
A transfer into trust can be an Inheritance Tax event.
HMRC explains that Inheritance Tax can arise when assets are transferred into certain trusts, at ten-year anniversaries while assets remain in relevant property trusts, and when assets leave those trusts.
For many transfers into a relevant property trust, the settlor's available nil-rate band and earlier chargeable transfers can affect whether an immediate lifetime IHT charge arises.
The type of trust and the timing and value of transfers determine which rules apply.
Relevant property regime
Some trusts can face periodic and exit charges.
Relevant property trusts can potentially face an Inheritance Tax charge on each ten-year anniversary and an exit charge when relevant property leaves the trust. HMRC's calculations depend on the circumstances and can involve the value of trust assets, available nil-rate band and earlier transfers.
Trusts can also have Income Tax, Capital Gains Tax, reporting and administration consequences separate from Inheritance Tax.
Trustees may have ongoing record-keeping, reporting, investment and legal responsibilities, and some trusts need to be registered with HMRC's Trust Registration Service.
Before creating a trust
Be clear about what you are giving up and what the trustees will control.
Transferring an asset into trust can change who legally owns and controls it. Depending on the trust, the settlor may no longer be able to recover the asset simply because their circumstances change.
Before proceeding, consider your own long-term financial security, the intended beneficiaries, trustee selection, access to capital, tax consequences and whether a simpler arrangement could achieve the same objective.
Financial planning can identify where a trust may fit, but the legal drafting and tax consequences should be handled with the appropriate professional advice.
Estate planning
Considering a trust as part of your estate plan?
We can help identify the financial-planning objective and work alongside the appropriate legal and tax professionals where a trust may be suitable.
Book a conversationThis guide is for general information only and is not personal legal, tax or financial advice. Trust law and taxation are complex and depend on the trust structure and individual circumstances. Tax rules can change. Appropriate legal and specialist tax advice should be obtained before establishing or changing a trust. Current GOV.UK/HMRC trust and Inheritance Tax guidance checked on 16 September 2026.