Putting a house or savings into a trust does not take them out of inheritance tax; it moves them into a separate regime with three charges of its own: 20% on entry on anything above the £325,000 nil-rate band (2026/27, frozen to 5 April 2031), a charge of up to 6% on every tenth anniversary, and an exit charge of up to 6% when assets leave (GOV.UK guidance). A home you give to a trust and keep living in stays in your estate in full. Correct as at 13 September 2026.
What is a trust, and why does inheritance tax treat it differently?
A trust is a way of managing assets: a settlor puts assets in, trustees manage them and beneficiaries benefit. Inheritance tax treats a lifetime gift into most trusts as a chargeable lifetime transfer, so the exemption for surviving 7 years after an outright gift does not cover it, although death within 7 years still adds tax (GOV.UK).
A bare trust holds assets for a beneficiary who can take them at 18; a discretionary trust lets the trustees decide who gets what. Registering the trust with HMRC within 90 days of it becoming liable to tax is a separate step (our Trust Registration Service guide).
What is the entry charge when you put assets into a trust?
The entry charge is inheritance tax at 20% (2026/27) on the value going into a discretionary or other relevant property trust above the settlor's available £325,000 nil-rate band. The rate is half the death rate (IHTA 1984 section 7). If the settlor dies within 7 years, additional tax at 40% arises on the same value, payable primarily by the trustees, with credit for the 20% already paid and taper from year three (IHTM30042).
What is the ten-year charge, and is it really 6%?
Six per cent is the ceiling (HMRC IHTM42081). On every tenth anniversary the trustees pay a charge on the net value of the relevant property the day before the anniversary: the value above the nil-rate band at the 20% lifetime rate, expressed as a percentage of the whole fund, then three tenths of that, capped at 6% (HMRC IHTM42087). A fund inside the nil-rate band pays nothing.
What is the exit charge when money leaves the trust?
An exit charge applies when relevant property leaves the trust, at up to 6%, scaled by the number of complete quarters out of 40 since the trust started or the last anniversary (HMRC IHTM42114 and IHTM42115), with no charge in the first quarter.
| Charge | When | Rate (2026/27) | Charged on | Form and payment |
|---|---|---|---|---|
| Entry charge | When assets go in | 20% of the value above the available £325,000 nil-rate band; up to 40% (less the 20% paid) if the settlor dies within 7 years | The chargeable transfer, grossed up if the settlor pays | IHT100a; 6 months after the end of the month of the transfer |
| Ten-year charge | Every tenth anniversary of the trust's start | Up to 6% (three tenths of the 20% lifetime rate on the value above the nil-rate band) | Net value of relevant property the day before the anniversary | IHT100d; 6 months after the end of the month of the anniversary |
| Exit charge | When assets leave or value is reduced | Up to 6%, scaled by complete quarters out of 40 since the start or last anniversary; nil in the first quarter | The value leaving | IHT100c; 6 months after the end of the month of the event |
Source: GOV.UK trusts and inheritance tax guidance; HMRC Inheritance Tax Manual IHTM42081, IHTM42114 and IHTM42115.
Can I put my house in trust to avoid inheritance tax and keep living in it?
No. GOV.UK states that if you make a gift into any type of trust but continue to benefit from it, you pay 20% on the transfer and the gift still counts as part of your estate. That is a gift with reservation of benefit under section 102 of the Finance Act 1986, and HMRC's manual (IHTM14301) treats occupying land you have given away as a reservation for gifts made on or after 18 March 1986, with further land-specific rules for gifts after 9 March 1999.
The result is the worst of both: an entry charge now and the full value taxed at 40% on death. A home passing into a discretionary trust can also lose the £175,000 residence nil-rate band (2026/27), because the children do not inherit outright.
Bare trust or discretionary trust: which one for a grandchild?
A gift into a bare trust for a grandchild is a potentially exempt transfer, free of inheritance tax if the giver survives 7 years and with no entry, ten-year or exit charges, but the child has the right to all the capital and income at 18. A discretionary trust keeps control with the trustees past 18, at the price of the three charges.
What is a nil rate band discretionary trust in a will, and is it still worth having?
A nil rate band discretionary trust is a will clause that puts an amount up to the unused nil-rate band, £325,000 (2026/27), into a discretionary trust on the first death. It used both spouses' bands before the unused band became transferable; now that a surviving spouse's estate can have up to £650,000 (2026/27), it is chosen for control rather than for the band.
It can still ring-fence assets on a second marriage. An older will may contain one and should be read again, which is wills work.
Example
Example. A grandmother settles £500,000 of cash into a discretionary trust for her three grandchildren in October 2026, with the trustees paying the tax.
Entry charge: £500,000 less the £325,000 nil-rate band (2026/27) is £175,000; 20% of £175,000 is £35,000, due on form IHT100a by 30 April 2027. If she dies within 7 years, the trustees pay up to 40% of £175,000, £70,000, less the £35,000 paid: at most £35,000 more, tapered from year three.
First ten-year anniversary, October 2036, assuming the fund is still £500,000 and the nil-rate band still £325,000 (frozen to 5 April 2031): £175,000 at 20% is £35,000, which is 7% of the fund; three tenths is 2.1%; 2.1% of £500,000 is £10,500. At the 6% ceiling it would be £30,000. If the trustees then pay £100,000 to a grandchild two and a half years later, 10 complete quarters, the rate is 2.1% times 10/40, 0.525%, so £525.
Given outright, or into a bare trust, the £500,000 carries none of these charges if she survives 7 years; the £35,000 buys control past 18. Had she put her £500,000 home into the trust and stayed living in it, the £35,000 would still be due and the home would still be in her estate.
What do trusts cost in income tax and capital gains tax?
A discretionary trust pays no income tax where its income is £500 or less, and once income is more than that the whole amount is taxed, at 45%, or 39.35% on dividend income (2026/27, GOV.UK), and its trustees pay capital gains tax at 24% on gains above a £1,500 annual exempt amount (2026/27, GOV.UK).
Two Budget 2025 measures, a £5 million cap per 10-year cycle on charges for trusts that held excluded property at 30 October 2024 (from 6 April 2025) and a charge where a settlor who is no longer a long-term UK resident later moves trust assets out of the UK (from 26 November 2025), touch only trusts with an overseas history.
When is a trust worth it, and when is it the wrong tool?
A trust is worth its cost where the point is control (a child past 18, a beneficiary who cannot manage money) or protection (a second marriage, a business interest). It is the wrong tool where the only aim is to shelter a home the giver keeps living in, or where an outright gift and 7 years' survival would do the same job.
The alternatives: an outright gift under the 7 year rule, a life policy written in trust to pay the tax rather than avoid it, or a family investment company. Weighing them is inheritance tax planning work.
What to do now
Before signing any deed, write down what the trust should do that an outright gift cannot, value the estate with our inheritance tax calculator, and check whether the assets you plan to settle exceed £325,000 (2026/27). Listing prior gifts and reading an existing will need no adviser; the deed, which a solicitor draws, the IHT100 return and the ten-year calculation do.
Tax on the transfer is due by the end of the sixth month after it, and the trust must be registered within 90 days of becoming liable to tax.
What we do when a client asks about a trust
We ask first for a list of what you own and its rough value, any gifts in the last 7 years, the current will, and what the trust should achieve. We model the trust against an outright gift, a policy written in trust to fund the tax, and the existing will, with the charges and running costs side by side.
After the first look we say whether the assets are inside or above the £325,000 band (2026/27), whether your home is involved, and whether a trust is the wrong tool. If we cannot help we will say so. If you proceed, we prepare the IHT100 account for the transfer and later events and your solicitor draws the deed; we do not draft trust deeds. We also prepare wills, including mirror wills, with the estate position in mind.
Frequently Asked Questions
Not by putting assets in. A gift into most trusts is charged at 20% above £325,000 (2026/27) on the way in, at up to 6% every 10 years and on the way out, and the settlor must survive 7 years to escape the death-rate top-up.
If you keep living there it is a gift with reservation and stays in your estate, while the 20% entry charge is still due. The residence nil-rate band can be lost, the trust must register with HMRC and pay the ten-year and exit charges, and the transfer is a disposal for CGT.
None is exempt altogether. Outside the ten-year and exit charges are bare trusts (the transfer in is exempt if the giver survives 7 years), trusts for a disabled person (no ten-year or exit charge while the interest stays with the beneficiary), bereaved minor trusts where the child takes by 18, and interest in possession trusts set up before 22 March 2006, whose assets are taxed as part of the beneficiary's estate on death instead (GOV.UK trusts guidance).
Up to 6% of the net value of the relevant property the day before each tenth anniversary, but the actual rate is three tenths of the 20% lifetime rate on the value above the nil-rate band, so a £500,000 fund with a £325,000 band (2026/27) pays 2.1%, or £10,500.
Talk to Chloe Symmonds about a trust
The first conversation covers what you own, what you have given away in the last 7 years and what you want the trust to do. Chloe Symmonds, Senior Manager, handles the firm's inheritance tax and probate files. Call 020 8554 2135, email info@visionconsulting.co.uk or use the contact page.
About Vision Consulting. Vision Consulting is a firm of chartered accountants and registered auditors, regulated by ICAEW, with offices in the City of London (the Gherkin, 30 St Mary Axe), the West End (33 Cavendish Square) and Gants Hill, Ilford. The firm provides year-end accounts, bookkeeping, payroll and tax compliance, including Making Tax Digital and VAT, for individuals, landlords, directors and businesses. Its specialist teams provide audit and assurance (company and charity audits and audit-exemption advice), probate and estate administration (the firm is licensed for non-contentious probate), inheritance-tax and estate planning, HMRC tax investigations and voluntary disclosures, property and landlord taxation, and corporation-tax and company advisory.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances. Speak to us before acting on anything here.