Inheritance Tax & Trusts

Inheritance Tax & Trusts: Detailed Planning & Risk Management

At Hewetts Solicitors, we often see clients who believe their estates are safe from “the taxman,” only to discover that rising asset values, frozen thresholds, or poorly structured trusts expose them to unexpectedly large inheritance tax (IHT) bills. Below is detailed guidance on how IHT works now, what to watch out for, and planning strategies to protect your estate.

Current Rules & Thresholds

• The nil rate band (NRB) remains at £325,000 per person—this is the amount of your estate that can pass free of inheritance tax. Anything above this is taxed at 40%, unless covered by reliefs. uk+2Blacktower United Kingdom+2
  
• The Residence Nil Rate Band (RNRB) can add up to £175,000 more if you leave your main residence to direct descendants, subject to the total estate value and certain tapering rules. Blacktower United Kingdom+1
  
• Transfers between spouses or civil partners are IHT-exempt; unused nil-rate or residence bands may be transferred.
  

How Trusts Are Treated

• Setting up a trust may remove assets from your estate, but this comes with tax consequences. Many trusts are subject to 10-year anniversary charges: every ten years the value of relevant property in the trust is assessed, and IHT may be payable on that. Also, exit charges apply when property is removed from the trust or the trust ends. uk
  
• Different trust types have different rules:
  Bare trusts: simpler, often minimal charges and more transparent.
   • Interest in possession trusts: if set up before certain dates, may avoid some charges; if after, subject to periodic charges. gov.uk+1
   • Discretionary trusts: assets are under greater control of trustees; beneficiaries do not have guaranteed rights. These are more likely to incur charges and lose eligibility for residence nil-rate benefits.
  

Risks of Frozen Thresholds & Asset Inflation

• The nil rate band has been frozen for many years. With property and asset prices rising, more estates are being pulled into the IHT regime even without a change in law.
  
• From April 2027, pensions are set to be included in the person’s estate for IHT purposes (this is a pending change, so keep aware).
  
• Agricultural and business property reliefs are also under review; some proposed changes may limit reliefs or introduce caps.
  

What Clients Should Do to Protect Their Estates

1. Review existing wills and trusts. Are they structured efficiently? Do they still reflect family circumstances?
   
2. Document family composition and wishes clearly. If you want certain gifts or distributions, ensure these are in your will or in separate properly executed agreements.
   
3. Consider lifetime gifts where appropriate: small gifts, potentially exempt transfers (PETs), regular giving, or gifts into trusts can reduce the taxable estate — but you must survive seven years for many such gifts to fully escape IHT.
   
4. Trust advice: If you have an existing trust, check whether the type of trust preserves benefits (such as RNRB), and whether periodic or exit charges apply.
   
5. Life insurance in trust: If you anticipate IHT liability, a life insurance policy written in trust can provide beneficiaries with funds without lengthy probate or ownership delay.
   
6. Keep up with legislative changes. With pensions, thresholds and reliefs under review, legal/tax regimes may change — so estate planning should be adaptable.
   

At Hewetts Solicitors, our Private Client team is experienced in advising on IHT, wills, trusts, tax reliefs, and cross-border estate issues. We can conduct estate reviews, draft or amend trusts, and guide clients through complex IHT-sensitive decisions to minimise tax, avoid unexpected costs, and ensure your family is not caught unprepared.

For more information please contact Tim Butcher at t.butcher@hewetts.co.uk or 0118 955 9610

Published on 22/10/2025