Accumulation & Maintenance Trusts UK (2026): Finance Act 2006 Changes & IHT Treatment

An accumulation and maintenance (A&M) trust was a trust used principally by parents and grandparents to hold assets for children or grandchildren until they reached a specified age. Before 22 March 2006, A&M trusts benefited from a privileged inheritance tax regime under s.71 IHTA 1984: they were not subject to the 10-year periodic IHT charge (up to 6% of the trust value) or exit charges that apply to ordinary discretionary trusts, provided certain conditions were met — principally that the beneficiaries would become entitled to the trust assets (or the income from them) by age 25, and that income was either accumulated or applied for the beneficiaries' maintenance, education, or benefit. The Finance Act 2006 fundamentally restructured the IHT treatment of trusts. From 22 March 2006, all new trusts (with narrow exceptions) entered the 'relevant property' regime — meaning periodic charges, exit charges, and the same IHT treatment as discretionary trusts. The two exceptions that survived were trusts for bereaved minors (s.71A IHTA 1984 — must vest at 18) and age 18-to-25 trusts (s.71D IHTA 1984 — may vest up to 25 but with limited exit charges). Existing A&M trusts were given a transitional period (to 6 April 2008) to either wind up or convert to one of the surviving privileged forms.

Under the pre-2006 regime, an A&M trust qualified for the s.71 IHTA 1984 exemption from periodic and exit charges if: (1) one or more of the beneficiaries would become entitled to the trust property (or an interest in possession in it) before reaching age 25 — beneficiaries entitled at 25 qualified; (2) no interest in possession in the trust property subsisted — the trust had to be a pure accumulation or discretionary structure, not a life interest trust; (3) income that was not applied for the maintenance, education, or benefit of a beneficiary had to be accumulated — it could not be paid to a third party or distributed as income to adult beneficiaries; and (4) either all the beneficiaries were grandchildren of a common grandparent, or the trust had been in existence for fewer than 25 years and all beneficiaries were children of a living common parent. The parent/grandparent condition was satisfied even if a beneficiary was the child or grandchild of a deceased person, provided they were still grandchildren of a common grandparent.

A trust for bereaved minors (TBM) under s.71A IHTA 1984 is a trust set up for a child who has lost a parent (or step-parent). TBMs escape the relevant property regime entirely — no periodic charges, no exit charges — provided: (1) the trust is established by a parent's will, by the Criminal Injuries Compensation Scheme, or by intestacy; (2) the beneficiary is under 18 and the child of the deceased; (3) the trust property vests absolutely in the beneficiary on or before their 18th birthday; (4) while the beneficiary is under 18, they are entitled to any income generated (or it is accumulated for them), and no one other than the beneficiary can benefit from the trust capital or income. The key restriction is that the beneficiary must take the assets outright at 18 — there is no power to extend the trust beyond 18. TBMs are commonly set up in mirror wills: 'if my spouse does not survive me, hold the residue on trust for my children equally contingent on reaching 18'. Because TBMs can only be created by a parent's will or intestacy, grandparents and other relatives cannot use this vehicle — they use s.71D age 18-to-25 trusts instead.

An age 18-to-25 trust under s.71D IHTA 1984 is a trust — also limited to children who have lost a parent — that can defer vesting to any age between 18 and 25. Unlike a TBM, it does attract exit charges when the beneficiary takes their share between 18 and 25, but these are significantly lower than ordinary discretionary trust charges. The exit charge rate is calculated as: (effective rate × years/40) × value, where the effective rate is based only on the period from age 18 to the date of exit (not the full trust life since settlement). In practice, a beneficiary taking assets at 21 would have an exit charge calculated on 3 years of 'relevant property' status (18 to 21), making the charge at most a fraction of a percent of the trust value. No periodic charge applies while the trust qualifies. Conditions mirror TBM: only a parent's will or intestacy can create a s.71D trust; the beneficiary must be the child of the deceased; while under 25 they must be entitled to income or it must be accumulated for them; and only they can benefit from the trust.

Existing A&M trusts that satisfied the old s.71 IHTA 1984 conditions were given a transitional window to restructure or wind up without the restructuring itself triggering an IHT exit charge. HMRC published guidance confirming that trustees could: (a) advance capital to beneficiaries before 6 April 2008 — no exit charge arose if the trust would have qualified under the old s.71 on the date of advance; (b) amend the trust deed to convert it into a TBM (s.71A) or age 18-to-25 trust (s.71D) if the beneficiaries were the children of a deceased settlor and met the conditions; or (c) allow the trust to fall into the relevant property regime from 6 April 2008, at which point the first periodic charge would fall on the 10th anniversary of the original trust creation date. Many family trusts set up in the 1980s and 1990s as A&M trusts were wound up during the 2006–2008 transitional window or restructured into life interest trusts (which, if they were IPDI — immediate post-death interests — also escaped the relevant property regime if created by will on a death after 22 March 2006).

After Finance Act 2006, grandparents are in a less favourable position than parents when using trusts in wills for grandchildren. The TBM (s.71A) and age 18-to-25 trust (s.71D) are available only for a child of the deceased — a grandparent's will cannot use these vehicles for grandchildren. For grandchildren, the available options are: (1) an immediate post-death interest (IPDI) trust giving the grandchild an immediate life interest — this escapes the relevant property regime and periodic charges, but the trust property is then in the grandchild's estate for IHT once they inherit it; (2) an absolute gift to each grandchild at 18 or 21 or 25 — if the grandchild is not yet born or not yet ascertained at the grandparent's death, the gift is typically structured as a class gift and held on bare trust (no IHT charges for bare trusts); or (3) a discretionary trust accepting the relevant property regime — periodic charges every 10 years and exit charges apply. For large family trusts, the IHT cost of the relevant property regime can be mitigated by careful trustee discretion (applying income to beneficiaries rather than accumulating, which reduces the trust value subject to periodic charges) and by funding the trust with business property relief-qualifying assets (which reduce the chargeable value to nil or 50%).