Do you Pay Inheritance Tax on a Trust?

A Trust can be a great way to support those you care about and can be an essential part of financial future planning.

They can come with certain additional considerations and have an impact on other areas of finance. Questions might arise like ‘do you pay inheritance tax on a Trust?’

For many, they won’t know the answer when considering how to create a Trust and what is required, but they need to as it can affect the amount that is passed on to beneficiaries of the Trust. 

A Trust can help in a number of ways, from controlling and protecting family assets, maintaining assets when the beneficiary is too young to receive them, or to pass on assets while you’re still alive. There is an obvious benefit to being in control of assets and ensuring the maximum permissible value is passed on to the people you’d want to receive them. 

Do you pay inheritance tax on a Trust?

This is a fairly complex question due to the nature of inheritance tax and the many different types of Trust that can be set up. There isn’t really a yes or no answer to this as it is dependent on the facts of the individual matter at hand.

When you settle assets into a Trust these then belong to the Trust and are no longer yours. This means that they may fall outside of your estate for inheritance tax purposes.

The asset(s) that have been put into Trust is subject to the seven-year rule relevant to gifts, meaning the asset will not be liable for inheritance tax, providing the person who settled the asset into Trust (the Settlor) survives for seven years.

However, even if the Settlor survives for seven years, and with the asset not forming part of estate, this does not mean that the Trust automatically bypasses inheritance tax. For example, it is common for people to place their property into Trust for the benefit of their children but stay living in the property until death.

This would be seen as a ‘gift with reservation of benefit’ and the value of the property would therefore be included in any inheritance tax calculations, despite the property being held in Trust.

There are many other situations where a Trust may not necessarily protect assets from inheritance tax, and we would advise seeking professional advice if you have any tax or Trust concerns.

Why choose Winns?

When considering how to create a Trust, think about whether it is best to do it yourself or rely on the expertise associated with a dedicated legal team, like the one at Winns.

We have a diligent, experienced, and compassionate Wills, Probate, and Trusts team that specialises in matters surrounding how to create a Trust. You’re in capable hands once you instruct our team to handle your affairs.

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