Age 18-25 Trust IHT UK 2026: s71D IHTA, Bereaved Minors, No 10-Year Charge, Exit Charges Only Between 18 and 25, and Will Planning
An age 18-25 trust under s71D IHTA 1984 lets a parent defer a child's capital entitlement to age 25, protecting a young person from a large inheritance, with minimal IHT cost. No 10-year periodic charges at any time. Exit charges only between ages 18 and 25, at very low rates. RNRB qualifies where the family home passes via the trust to direct descendants.
s71D IHTA: No Periodic Charges Ever, Exit Charges Only Between 18 and 25 (Very Low Rate)
Age 18-25 trust (s71D IHTA 1984): bereaved minor's trust deferring capital entitlement to age 25 (not 18 as under s71A). NO 10-year periodic charges at any time. NO exit charges before age 18. Exit charges between 18 and 25: (complete quarters since age 18)/40 × settlement rate, maximum ~3% of trust value over 7yr. RNRB qualifies (qualifying trust for direct descendants). Compare with ordinary discretionary trust: subject to 10yr periodic charges (max 6% per decade) AND exit charges. Age 18-25 trust is far more IHT-efficient than a discretionary trust for bereaved minors. Must be created by the deceased PARENT's will (not grandparent; not inter vivos). Income tax in trust: 45% trust rate. Distribute income to beneficiary post-18 to save tax at their personal rates.
| Aspect | Rule / Principle | Example / Scenario | Planning Guidance |
|---|---|---|---|
| What is an age 18-25 trust and how does it differ from a bereaved minor's trust? | AGE 18-25 TRUST (s71D IHTA 1984): a trust created by a deceased parent's will (or under the Criminal Injuries Compensation Scheme) for a bereaved minor where the minor becomes entitled to the trust property at or before age 25 (NOT 18 as under s71A). WHO IS A BEREAVED MINOR? A bereaved minor is a person under 18 who has lost at least one parent. The parent who created the trust (by will or CICS) is the deceased parent. COMPARISON WITH BEREAVED MINOR'S TRUST (s71A IHTA): a s71A bereaved minor's trust requires the minor to become ABSOLUTELY ENTITLED by age 18 (or die before 18). No relevant property charges at any time. A s71D age 18-25 trust allows deferral of entitlement to age 25, but introduces an exit charge regime BETWEEN ages 18 and 25. IHT COMPARISON TABLE: s71A (bereaved minor's trust): (a) entitlement by 18; (b) no periodic charges; (c) no exit charges at any time; (d) trust property NOT included in the minor's estate before 18 (not a QIIP); (e) RNRB qualifies if home passes to bereaved minor via the trust. s71D (age 18-25 trust): (a) entitlement by 25; (b) no periodic charges (10yr charges) ever; (c) exit charges apply between ages 18 and 25 (very low rate); (d) no exit charges before age 18; (e) RNRB qualifies. WHY CHOOSE s71D OVER s71A? Many parents prefer to defer capital entitlement beyond 18, an 18-year-old may not be mature enough to handle a large inheritance. The s71D trust allows: (a) the trustees to manage the trust until the child reaches 25; (b) income (and capital in trustee discretion) to be applied for the child's benefit between 18 and 25; (c) the capital to pass absolutely at 25. THE COST OF DEFERRAL BEYOND 18: the s71D exit charges between 18 and 25 are very modest (max ~1% to 5% of the trust value for the average trust). The cost of protecting a 19-year-old from a windfall inheritance is low. WHY NOT USE A SIMPLE DISCRETIONARY TRUST? A fully discretionary trust for minors is relevant property from its creation, subject to 10-year periodic charges (max 6% of trust value above NRB every 10yr) and exit charges. For a £500k trust over 25yr: periodic charges could total £90k+. An age 18-25 trust avoids ALL periodic charges and has only minimal exit charges between 18 and 25. THE s71D TRUST IS FAR MORE EFFICIENT than a discretionary trust where the parents want to defer entitlement beyond 18. | COMPARISON EXAMPLE: Michael (age 38) dies leaving £800k (including the family home worth £500k). His wife Jane predeceased him. Their children are Tom (age 14) and Emma (age 10). Michael's will creates an age 18-25 trust for Tom and Emma equally. TRUST STRUCTURE: £400k for Tom in s71D trust; £400k for Emma in s71D trust. The family home is split £250k each. IHT ON MICHAEL'S DEATH: Michael's NRB (£325k) + RNRB (£175k, home passes via will to bereaved minor direct descendants via s71D trust which qualifies for RNRB). Total threshold = £500k. IHT = 40% × (£800k − £500k) = 40% × £300k = £120k. Tom's trust (£400k): NO periodic charges before Tom reaches 18. Tom reaches 18 in 4yr. After Tom's 18th birthday: exit charges may apply if capital is distributed. If Tom takes the full £400k at age 21 (3yr between 18 and 21): exit charge rate = (3/40) × 30% = 2.25% of the settlement rate (based on the 'effective rate' on the trust value above NRB). If trust value at 21 is £450k (growth assumed): effective rate = IHT rate on a hypothetical transfer of £450k above NRB: 30% × 40% × (£450k − £325k)/ £450k = approximately 3.3%. Exit charge = 2.25% × 3.3% = 0.074% ... (the calculation is very low in practice). CONTRAST WITH DISCRETIONARY TRUST: the same £400k in an ordinary discretionary trust would attract 10-year periodic charges. First charge at year 10: approximately 6% × (£400k − £325k NRB) = 6% × £75k = £4,500. Modest, but repeated every 10yr. Age 18-25 trust: NO such charges. | WHEN TO USE AN AGE 18-25 TRUST IN YOUR WILL: (1) YOUNG CHILDREN: where children are under 18 at the time the will is drafted (and the testator anticipates them still being young when the will operates), the s71D trust is ideal. The will can defer capital entitlement to 25 while the trustees manage investments and apply income for the children's education, maintenance, and welfare. (2) BALANCE: IHT EFFICIENCY vs MATURITY: the s71D trust gives the testator the flexibility to defer to 25 without significant IHT cost. For most estates, the s71D exit charges (modest percentages between 18 and 25) are far less than the benefit of protecting a young person from a large inheritance at 18. (3) DISCRETION FOR TRUSTEES: unlike a s71A trust (where the beneficiary MUST receive capital at 18), a s71D trust allows trustees to apply INCOME and CAPITAL for the benefit of the beneficiary between 18 and 25 at their discretion, the only IHT consequence is the exit charge on capital paid out. (4) CAN THE CHILD DIE BEFORE 25? If the beneficiary dies before 25, the trust capital at death is: NOT included in the beneficiary's estate (they have no absolute entitlement until 25). The capital passes to the alternative beneficiaries (as set out in the trust deed). No IHT on the beneficiary's death in respect of the trust capital. (5) TRUST MUST BE CREATED BY THE PARENT'S WILL: a s71D trust must be established by the deceased PARENT'S will (or CICS). A grandparent or other testator creating a trust for an orphaned grandchild does NOT create a s71D trust. If no parent has died: the trust is an ordinary discretionary trust. (6) VULNERABLE BENEFICIARY TAX RELIEF: a s71D trust is NOT a QTVB (the bereaved minor is not a 'vulnerable person' within the Finance Act 2005 definition, they have not met the disability or other conditions). Therefore VBTR does NOT apply to income and CGT within the trust. Trustees pay income tax at 45% on trust income. Consider accumulating income within the trust (rather than distributing) to minimise tax if the beneficiary has no separate income. |
| Exit charges on age 18-25 trusts: s71F IHTA calculation | EXIT CHARGES ON AGE 18-25 TRUSTS (s71F IHTA 1984): the exit charge is triggered when property leaves an age 18-25 trust AFTER the beneficiary reaches age 18. WHEN NO EXIT CHARGE APPLIES: (a) distributions of income at any time; (b) distributions of capital BEFORE the beneficiary reaches 18; (c) distributions of capital AFTER the beneficiary turns 25 and becomes absolutely entitled (no charge at the vesting point itself if the trust distributes at exactly age 25 when the trust ends). EXIT CHARGE CALCULATION (s71F): the charge is calculated as: step 1, calculate the 'settlement rate' (the effective rate that would apply to a hypothetical CLT of the trust value above the NRB at the date of the exit, based on the full periodic charge formula under s66 IHTA). Step 2, multiply by the proportion of 40 quarters (10yr periods) that have elapsed since the beneficiary's 18th birthday: (number of complete quarters since age 18) / 40. Step 3, the exit charge is: (proportion from step 2) × (settlement rate) × (value of property leaving the trust). THE MAXIMUM YEARS: the maximum of (number of quarters) is 28 (7yr × 4 quarters = 28 quarters, since the trust can run from age 18 to at most 25, which is 7yr = 28 quarters). (28/40) = 70% of the full settlement rate. BUT: the settlement rate itself is typically very low for smaller trusts (because it uses the NRB and the 30% × 40% formula, and the settlement rate is further discounted for the number of quarters since the trust's creation). THE EFFECTIVE MAXIMUM EXIT CHARGE: for a trust of £500k where the NRB is £325k at the exit, the effective rate is: 30% × [IHT on £500k above NRB] / £500k = 30% × [40% × (£500k − £325k)] / £500k = 30% × [40% × £175k] / £500k = 30% × £70k / £500k = 30% × 14% = 4.2% settlement rate. Exit charge at age 25 (full 28 quarters): (28/40) × 4.2% = 2.94% of £500k = £14,700. Maximum charge on a £500k trust = £14,700 (2.94%). For context: an ordinary discretionary trust of £500k would pay 10-year charges of approximately £10,500 every 10yr (roughly equivalent per decade). But an age 18-25 trust only pays the exit charge ONCE on the full trust value, not a recurring decade-by-decade charge. | EXIT CHARGE WORKED EXAMPLE: Claire (age 16) is a bereaved minor. Her late father's will created an age 18-25 trust of £300k for Claire. NO EXIT CHARGES before age 18. Claire reaches 18. The trust is now worth £350k. Trustees apply £50k for Claire's university costs at age 19 (1 complete year = 4 quarters after age 18). Exit charge on £50k distribution: Step 1, settlement rate: effective rate on trust value £350k: 30% × [40% × (£350k − £325k NRB)] / £350k = 30% × [40% × £25k] / £350k = 30% × £10k / £350k = 30% × 2.86% = 0.86%. Step 2, proportion: 4 quarters / 40 = 10% of full rate. Step 3, exit charge = 10% × 0.86% = 0.086% × £50k = £43. THE EXIT CHARGE ON A £50k DISTRIBUTION AT AGE 19 IS £43, EFFECTIVELY NEGLIGIBLE. At age 25 (full 28 quarters), Claire is entitled to the balance (say £320k). Exit charge on the remaining £320k: (28/40) × settlement rate on £320k. Since £320k − £325k NRB = −£5k: the trust value is BELOW the NRB. No IHT on a hypothetical transfer below the NRB. Settlement rate = 0%. EXIT CHARGE = £0 (trust value within NRB, effectively zero charge). NOTE: in many bereaved minor estates, the trust value may fall below the NRB by the time of distribution, resulting in no exit charge at all. The age 18-25 trust is extremely IHT-efficient in practice for smaller estates. | MAXIMISING THE EFFICIENCY OF AN AGE 18-25 TRUST: (1) TIME DISTRIBUTIONS TO MINIMISE EXIT CHARGES: the exit charge increases with time between age 18 and the distribution date. If capital must be distributed, distribute early (shortly after 18) when the charge is minimal rather than waiting until close to 25. (2) INCOME DISTRIBUTIONS ARE EXEMPT: distribute income from the trust to the beneficiary at any time after 18, no exit charge on income. The trust income tax rate is 45% (on discretionary trust income). Consider whether it is more efficient to: (a) accumulate income in the trust at 45%; or (b) distribute income to the beneficiary (who may pay a lower personal rate, 20% basic rate if no other income). Distributing income avoids the 45% trust rate, a significant saving if the beneficiary has a personal allowance or is a basic-rate taxpayer. (3) INVESTMENT WITHIN THE TRUST: while the beneficiary is a minor (before 18): no exit charges. Accumulate and invest aggressively within the trust. After 18: the trust can still invest and grow. (4) ALTERNATIVE TO AGE 18-25 TRUST, BARE TRUST: a bare trust for a minor creates an immediate absolute entitlement (the child owns the assets from day one). The assets are included in the child's estate (but a minor rarely has an estate above the NRB). No IHT charges on bare trusts. BUT: the child can demand the assets at 18 (Saunders v Vautier rule), the trust cannot be continued against the child's will. The age 18-25 trust gives the trustees control until 25. (5) REVIEW AT AGE 18: when the beneficiary reaches 18, trustees should review the trust's position, assess the exit charge rate, consider whether income should be distributed (to avoid the 45% trust rate), and plan the phased capital distribution to minimise exit charges. |
| RNRB with age 18-25 trusts; CGT and income tax within the trust | RESIDENCE NIL-RATE BAND (RNRB) AND AGE 18-25 TRUSTS: an age 18-25 trust created by a deceased parent's will for a bereaved minor QUALIFIES for the RNRB. The RNRB conditions (s8H IHTA): the property must be a 'qualifying residential interest' (QRI, the deceased's dwelling-house or share in a dwelling-house that has been their home at some time since 7 July 2015); AND the QRI must 'closely inherit' to a direct descendant. A s71D age 18-25 trust where the QRI is held on trust for a direct descendant (child, grandchild) satisfies the 'closely inherited' test, the trust is a qualifying trust for RNRB. THE RNRB AMOUNT: £175k per individual (2026-27), £350k per couple (using the Transferred RNRB from the first spouse's estate). WHERE BOTH PARENTS HAVE DIED: on the death of the first parent, if assets pass to the second parent (spouse exempt), no RNRB used. On the death of the second parent (with the s71D trust for the children): the RNRB from the first parent (if unused) can be transferred, TRNRB of £175k + RNRB of £175k = £350k total RNRB on the surviving parent's death. CGT WITHIN THE AGE 18-25 TRUST: the trust is subject to CGT at trust rates: 20% on most gains (24% on residential property gains from April 2024). The trust's annual exempt amount: £1,500 (2026-27, reduced from prior years). Trustees should review the CGT position on the trust portfolio, consider bed and ISA (selling and repurchasing within an ISA) for the beneficiary once they are 18 and can hold an ISA. INCOME TAX WITHIN THE AGE 18-25 TRUST: trust income: 45% on most income (39.35% on dividends). The rate is significantly higher than the beneficiary's personal rate if the beneficiary has limited other income. PARENTAL SETTLEMENT RULES (s629 ITTOIA 2005): income from property settled by a living parent in trust for their minor unmarried child is taxed as the parent's income (not the trust's) if the parent benefits. BUT: an age 18-25 trust created BY THE WILL (i.e., the deceased parent's will) is NOT a 'parental settlement' (the parent is dead). The income is taxed within the trust at 45%, not at the parent's (deceased parent's) rates. There is no living parent being taxed on the trust income. | INCOME TAX IN AN AGE 18-25 TRUST, PRACTICAL EXAMPLE: the trust holds £300k in investments generating £12k per year in dividends. Trust rate on dividends: 39.35% = £4,722 tax per year. Beneficiary Tom (age 17) has NO other income. Tom's personal allowance: £12,570 (2026-27). If the trust distributed the £12k income to Tom directly: Tom's tax on £12k dividends = £0 (within his £12,570 personal allowance + £500 dividend allowance). SAVING FROM DISTRIBUTION: £4,722 per year. BUT: trustees can only distribute income at their discretion. They should actively consider distributing income to the beneficiary (post-age 18) rather than accumulating within the trust at 45%. Also: after Tom reaches 18, he can hold an Adult ISA (£20k per year). Trustees could distribute cash to Tom (from the trust principal, incurring a small exit charge) and Tom invests in an ISA, future income and gains within the ISA are tax-free. The exit charge on the distribution may be significantly less than the ongoing income tax saving. RNRB EXAMPLE: Michael dies (age 38) leaving the family home (£500k) on an age 18-25 trust for his bereaved children Tom (14) and Emma (10). The trust qualifies for the RNRB (s71D age 18-25 trust, RNRB qualifying trust for direct descendants). RNRB used on Michael's death: £175k. TRNRB from Michael's predeceased wife Jane: Jane's estate was fully spouse-exempt and her RNRB was unused, TRNRB = £175k. Total RNRB on Michael's death = £175k + £175k = £350k. NRB = £325k. Total threshold = £675k. IHT = 40% × (Michael's estate − £675k). If Michael's estate is £800k: IHT = 40% × £125k = £50k. | DRAFTING AN AGE 18-25 TRUST IN YOUR WILL, CHECKLIST: (1) IDENTIFY THE BEREAVED MINOR BENEFICIARIES: the s71D trust must be for your own children (or stepchildren who are direct descendants). The children must be minors when you die (under 18). If the children may not be minors when you die (older testator; children are teenagers): consider a clause that automatically uses s71D if the children are under 18 at death and a simple absolute gift if they are over 18. (2) THE VESTING AGE: choose a vesting age between 18 and 25. Most practitioners recommend 21 or 25. 25 gives maximum trustee control but the highest potential exit charge (still low). (3) TRUSTEE SELECTION: choose trustees who will actively manage the trust and make sensible decisions about income distribution (to minimise income tax) and capital applications (timed to minimise exit charges). A professional trustee alongside family members is common. (4) LETTER OF WISHES: write a letter of wishes accompanying the will explaining: how you want the trust assets invested; what purposes the trustees should consider for income and capital payments (education, housing, living expenses); at what age or milestone you would ideally prefer the child to receive capital. (5) TRUST DEED vs WILL TRUST: a will trust created by the will itself is the standard approach. An inter vivos (lifetime) trust cannot be a s71D trust (because the parent must be DEAD for the minor to be a bereaved minor). The trust is created by the will and only takes effect on the testator's death. (6) INTERACTION WITH LIFE INSURANCE: consider a term life insurance policy (written in trust for the children) that pays out on your death. The policy sum assured goes directly to the trust for the children, no IHT (held in trust from outset). The age 18-25 will trust + life insurance in trust is a comprehensive provision for minor children on unexpected parental death. |
Age 18-25 trust IHT UK 2026. IHTA 1984, s71D (inserted by Finance Act 2006): 'Trusts for bereaved young persons, (1) Subject to subsection (2), settled property is held on trusts for the benefit of a bereaved young person if, (a) the settled property is held on trusts for the benefit of a person ('B') who has not yet attained the age of 25, (b) B is a bereaved minor at the time the settlement is made, (c) at least one of B's parents has died, and (d) under the trusts, (i) B will, on attaining a specified age not exceeding 25, become absolutely entitled to the settled property and to any income arising from it, …' s71E IHTA (no 10-year charge): 'No tax shall be charged under section 64 in respect of property held on trusts for the benefit of a bereaved young person if the settled property is held on trusts for the benefit of such a person throughout the period by reference to which the charge would arise.' s71F IHTA (exit charges on age 18-25 trusts): the exit charge formula, (N/40) × settlement rate × value of property leaving the trust. Where N = number of complete quarters (3-month periods) the property has been in the relevant property regime since the beneficiary's 18th birthday. Maximum N = 28 (7yr × 4 quarters). Settlement rate = effective rate calculated as if a chargeable transfer had been made equal to the trust value above NRB at the exit date, using the 30% rate under the relevant property regime formula (s66 IHTA). IF TRUST VALUE ≤ NRB: settlement rate = 0% → exit charge = 0%. This means age 18-25 trusts with values within the NRB (£325k in 2026-27) attract ZERO exit charges at any point. RNRB AND AGE 18-25 TRUSTS: s8H(2)(c) IHTA 1984 (as amended by Finance Act 2016 and subsequent): a s71D age 18-25 trust where the QRI is settled for a direct descendant is a qualifying trust for RNRB purposes. BEREAVED MINOR DEFINITION: IHTA 1984, s71H, a 'bereaved minor' is a person under 18 who has at least one deceased parent. The trust must be established by the parent's will (or the Criminal Injuries Compensation Scheme rules). Grandparents creating trusts for grandchildren (after a child's death) do NOT create bereaved minor's trusts under s71A or age 18-25 trusts under s71D, these are discretionary trusts in the grandparent's estate. BARE TRUST ALTERNATIVE: a bare trust for a minor creates a Saunders v Vautier entitlement at 18, the minor can demand the assets. No IHT (the minor is treated as owning the assets, taxed on gains above the NRB). Trustees cannot defer beyond 18. CGT WITHIN AGE 18-25 TRUST: trustees are subject to CGT at 20% (24% for residential property) with a £1,500 annual exempt amount (2026-27). Consider timing disposals to use the annual exempt amount. Once the beneficiary is 18 and controls their own CGT position (including a £3,000 annual exempt amount and potentially lower rates), income and gains should be directed to or realised by the beneficiary where possible. INCOME TAX (45% trust rate): trustees of discretionary and accumulation trusts pay 45% on most income and 39.35% on dividends. This is significantly higher than the basic-rate taxpayer's 20% (or 8.75% on dividends). Distributing income to a beneficiary with a lower marginal rate saves tax substantially, at the cost of a potential exit charge on any capital distribution that is bundled.
Frequently Asked Questions
What is an age 18-25 trust for IHT purposes?
An age 18-25 trust (s71D IHTA 1984) is a trust created by a deceased parent's will for a bereaved minor, where the minor becomes absolutely entitled to the trust property no later than age 25. For IHT: before the minor turns 18, no periodic charges (10-year charges) and no exit charges apply. Between ages 18 and 25, exit charges apply when capital leaves the trust, but at a very low rate (calculated by reference to the number of complete quarters since the beneficiary's 18th birthday, never exceeding 7 years of the relevant property regime). No 10-year periodic charge ever applies. The age 18-25 trust allows parents to defer capital entitlement beyond 18 (protecting a young person from a large inheritance) at minimal IHT cost.
How do exit charges on an age 18-25 trust work?
Exit charges on an age 18-25 trust (s71F IHTA 1984) apply only when capital leaves the trust after the beneficiary reaches age 18. The rate is proportional to the time elapsed since age 18: the formula uses (complete quarters since age 18) / 40 × settlement rate. The maximum exit period is 7 years (from 18 to 25) = 28 quarters = 70% of the full settlement rate, but the settlement rate itself is typically very low (based on the IHT rate on the trust's value above the nil-rate band, often below the NRB entirely). In practice, exit charges on age 18-25 trusts are minimal, often less than 3% of the trust value in the most extreme case, and zero where the trust value is within the NRB. No exit charges apply before age 18. No 10-year periodic charges at any time.
Does an age 18-25 trust qualify for the Residence Nil-Rate Band?
Yes, an age 18-25 trust created by a deceased parent's will for a bereaved minor (who is a direct descendant) qualifies for the Residence Nil-Rate Band (RNRB). A qualifying residential interest (the family home or a share in it) passing into an s71D age 18-25 trust for a child or grandchild is treated as 'closely inherited' by that direct descendant, meeting the RNRB condition in s8H IHTA 1984. The RNRB applies on the testator parent's death. Where both parents have died and the first parent's RNRB was unused, the Transferred RNRB (TRNRB) is available on the second parent's death, up to £350k combined RNRB and TRNRB in 2026-27.
What is the difference between a bereaved minor's trust and an age 18-25 trust?
A bereaved minor's trust (s71A IHTA 1984) requires the bereaved minor to become absolutely entitled to the trust property on or before their 18th birthday. It has NO IHT charges at any time, no exit charges, no periodic charges. An age 18-25 trust (s71D IHTA 1984) allows entitlement to be deferred to a maximum age of 25. The cost of this extended flexibility: exit charges apply if capital leaves the trust between ages 18 and 25 (at a very low rate). Both trusts avoid the 10-year periodic charges that apply to ordinary discretionary trusts. The choice depends on the beneficiary's maturity: parents who want their children to access capital at 18 use s71A; those who want to protect the capital until 25 use s71D.
Can I create an age 18-25 trust in my will for my children?
Yes, the most common way to create an age 18-25 trust is through your will. The will should specify that your children's share of the estate is held on trust under s71D IHTA 1984 conditions, with the trustees having power to apply income and capital for the children's benefit, and the children becoming absolutely entitled to the capital no later than age 25 (or at an earlier age specified in the will, such as 21). The trust can only arise as a bereaved minor's trust if (a) the beneficiary is a minor at the time of your death and (b) you are the minor's parent. If your children may be over 18 when you die, include a fall-back clause giving them the capital absolutely. A professional will drafter should ensure the trust wording meets the s71D IHTA conditions exactly.
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