IPDI Trust Inheritance Tax UK: Immediate Post-Death Interest, RNRB, CGT Uplift vs Discretionary Trust (2026)
An IPDI trust (s49A IHTA 1984) preserves the RNRB, wipes out CGT gains on the life tenant's death, and has no periodic charges — three key advantages over a discretionary trust for surviving spouses.
| Feature | IPDI Trust (s49A IHTA) | Discretionary Trust |
|---|---|---|
| Definition | s49A IHTA 1984: interest in possession created on death (by will/intestacy); life tenant's interest subsists immediately from time of settlement creation | No fixed life tenant; trustees have discretion over income/capital distribution; no single beneficiary 'entitled' to benefit |
| IHT treatment — life tenant's estate | IPDI assets ARE in life tenant's IHT estate on death (s49(1) IHTA 1984 — qualifying interest in possession; treated as beneficial owner). IHT charged on death as if life tenant owned assets outright. Spousal exemption (s18 IHTA) applies if assets then pass to surviving spouse | Trust assets are NOT in any beneficiary's IHT estate. Assets in 'relevant property' regime (s64/s65 IHTA). No IHT on beneficiary's death (no estate inclusion) |
| RNRB (s8D IHTA — £175k) | RNRB APPLIES (s8H IHTA): if the qualifying residential interest in the IPDI passes to direct descendants (children, grandchildren, step-children) on the life tenant's death, the RNRB is available. This is the same as if the life tenant owned the home outright | RNRB LOST: a discretionary trust is not a 'closely inherited' structure for RNRB purposes. The home passing into (or remaining in) a discretionary trust on first death loses the RNRB for that death. Significant IHT cost if home passes via discretionary trust and RNRB lost (up to £70k per person) |
| CGT on life tenant's death | S72 TCGA 1992: on the life tenant's death, trust assets are treated as disposed of and reacquired at market value. CGT uplift — all unrealised gains in the IPDI trust are washed out on the life tenant's death. Remainder beneficiaries inherit at death value (no CGT on pre-death gain) | S72 TCGA does NOT apply to discretionary trusts on beneficiary's death (no qualifying interest in possession). Accumulated gains in discretionary trust are NOT washed out. Holdover relief available on exit charges (s260 TCGA) |
| Periodic IHT charges | NONE while IPDI subsists: an IPDI is NOT relevant property (s58(1)(a) IHTA excludes QIP trusts); no 10-yearly anniversary charge (s64 IHTA). Charges only arise if IPDI ends in lifetime (CLT) or on life tenant's death (standard estate IHT) | PERIODIC CHARGES: s64 IHTA — 10-year anniversary charge at up to 6% of value above NRB held in trust. Based on 'hypothetical transfer' calculation. E.g., £600k in trust at 10yr anniversary; NRB £325k; charge = 6% × £275k = £16,500 |
| Exit charges | NONE while IPDI subsists (not relevant property). On IPDI ending in lifetime = CLT (s52 IHTA — deemed PET before FA2006; now CLT). The trust then becomes relevant property and future exits from the newly-relevant property trust may incur exit charges | EXIT CHARGES: s65 IHTA — on distributions from the trust between 10yr anniversaries; proportionate to the periodic charge rate. E.g., if periodic rate = 6% × (months held ÷ 120 months), exit charge applies on each distribution |
| IPDI ending in lifetime | If life tenant surrenders or assigns the IPDI (e.g., they give up their right to income): this is a CLT (s52 IHTA). IHT at 20% on the value of the IPDI assets above the NRB (cumulated with other CLTs in 7yr). Trust then becomes a discretionary trust — relevant property from that date; periodic/exit charges apply going forward | N/A — discretionary trust does not have a life tenant whose interest can be surrendered; trustees already hold assets on discretionary terms |
| Flexibility for trustees/beneficiaries | LESS FLEXIBLE: life tenant has a right to income (or use of property). Trustees cannot pay capital to others without ending the IPDI (which triggers a CLT). The trust terms dictate what happens on the life tenant's death (typically capital to remainder beneficiaries) | MORE FLEXIBLE: trustees can decide how to distribute income and capital among a class of beneficiaries; they can take account of changing circumstances; can accumulate income; can advance capital to any beneficiary |
| Second marriage / vulnerable spouse protection | USEFUL for second marriages and blended families: life tenant (surviving spouse) can use assets during lifetime; cannot give them away or direct them on death (trust terms control the remainder); protects children of first relationship from assets being diverted to a new partner by the surviving spouse | Also used for this purpose but assets NOT legally 'the surviving spouse's' — surviving spouse must rely on trustees' discretion; can be more secure if trustees are independent |
IPDI: s49A IHTA 1984 (inserted by Finance Act 2006); qualifying interest in possession (QIP) — s49(1) IHTA 1984. Life tenant treated as beneficially entitled to IPDI assets. RNRB: s8H IHTA 1984 — RNRB available for IPDI if qualifying residential interest closely inherits to direct descendants on life tenant's death (s8K IHTA — children, grandchildren, step-children). CGT uplift: s72 TCGA 1992 — trust assets deemed disposed/reacquired at market value on life tenant's death; unrealised gains washed out. Periodic charges: NONE for IPDI (not relevant property — s58(1)(a) IHTA excludes QIP from relevant property). Exit charges: NONE while IPDI subsists. IPDI ending in lifetime: s52 IHTA 1984 — CLT; IHT at 20% above NRB; trust becomes relevant property; periodic/exit charges apply from conversion date. Discretionary trust: relevant property regime (s58 IHTA); periodic charge (s64 IHTA — 10yr anniversary; up to 6% above NRB); exit charge (s65 IHTA — proportionate); RNRB LOST; NO s72 TCGA CGT uplift. Second marriage protection: IPDI and discretionary trust both used; IPDI life tenant has legal right to income; discretionary trust beneficiary relies on trustees' discretion. Deed of variation: s142 IHTA 1984 — within 2yr of death; can convert discretionary trust to IPDI or vice versa; may recover RNRB for older estates.
IPDI Trust and IHT: Complete Guide
What is an IPDI trust and why it is used
An Immediate Post-Death Interest (IPDI) trust is a specific type of interest in possession trust defined in s49A IHTA 1984, inserted by Finance Act 2006. The defining characteristics: (1) it is a settlement (a trust) created on the death of a person — either under a will or on intestacy; (2) the beneficiary's interest in possession (their right to income or use of the trust property) subsists from the very moment the trust was created on death (not after a waiting period); and (3) it is not a transitional serial interest (TSI — a specific category of pre-2006 trust structures). Before Finance Act 2006, all interest in possession trusts (whether created in lifetime or on death) were qualifying interests in possession (QIP) and the trust assets were always in the life tenant's IHT estate. After Finance Act 2006, only specific types of interest in possession trusts retained QIP status — one of those is the IPDI (created on death by will or intestacy). The most common use of an IPDI is a 'life interest trust' created by will — typically for a surviving spouse: the deceased's will creates a trust giving the surviving spouse a right to income (or a right to live in a property) for life; on the surviving spouse's death, the capital passes to the children. This structure is widely used for: (a) second marriages and blended families — protecting children of the first marriage while providing for the surviving second spouse; (b) care home protection — limiting the capital at risk to the local authority means test (the surviving spouse has income, not capital, from the trust in some structures); (c) RNRB preservation — the IPDI allows the RNRB to be claimed on the life tenant's death (unlike a discretionary trust); (d) protecting the surviving spouse from their own potential for making unwise financial decisions in later life.
IHT treatment — IPDI assets are in the life tenant's estate
The fundamental IHT rule for IPDIs: the assets in an IPDI trust ARE treated as being in the life tenant's IHT estate on their death. This follows from s49(1) IHTA 1984, which provides that a person who has a qualifying interest in possession in settled property is treated as beneficially entitled to the property in which the interest subsists. An IPDI is a qualifying interest in possession (QIP). Therefore, on the death of the life tenant (surviving spouse in the typical will trust structure), the IPDI trust assets are added to the life tenant's own estate for IHT purposes. IHT is charged at 40% on the combined value (life tenant's own estate plus the IPDI assets) above the available thresholds (NRB, RNRB, tNRB, tRNRB). Example: surviving spouse dies with own assets of £300k and an IPDI trust containing a home worth £400k (originally passed into the IPDI trust from the deceased first spouse's estate). The IPDI home is included in the surviving spouse's estate for IHT: total estate = £700k. NRB £325k + RNRB £175k (if the home passes to children from the IPDI trust) = £500k threshold. IHT = 40% × (£700k - £500k) = £80k. The RNRB is available because the home is in an IPDI — it 'closely inherits' to the children on the life tenant's death (s8H IHTA). If this were a discretionary trust: no RNRB (RNRB lost); IHT = 40% × (£700k - £325k) = £150k. The IPDI saves £70k IHT versus a discretionary trust in this example.
The RNRB advantage of an IPDI over a discretionary trust
The most significant IHT advantage of using an IPDI trust (rather than a discretionary trust) for a surviving spouse's will trust is the preservation of the RNRB. Section 8H IHTA 1984 specifically provides that the RNRB (s8D IHTA — £175k per person) applies to an IPDI trust where the qualifying residential interest in the trust 'closely inherits' to direct descendants (children, grandchildren, step-children) on the life tenant's death. How it works: if the first spouse's will creates an IPDI trust over the family home for the surviving spouse, and on the surviving spouse's death the home passes (under the trust terms) to the children — the surviving spouse (as life tenant) is treated as owning the home (IPDI = QIP); the home passes to the children = closely inherited; RNRB available (£175k) on the surviving spouse's death. If instead the first spouse's will put the home into a discretionary trust: the discretionary trust is not a QIP; the home is NOT in the surviving spouse's estate; the home cannot 'closely inherit' to direct descendants from the surviving spouse's estate (it's in the trust, not the estate); the RNRB is LOST on the surviving spouse's death. The RNRB loss from using a discretionary trust over a home can cost up to £70,000 in IHT (40% × £175k). For older wills drafted before the RNRB was introduced in 2017 that include a discretionary NRB trust: consider reviewing the trust structure and possibly varying the trusts to IPDI to preserve the RNRB. A deed of variation (s142 IHTA 1984 — if within 2yr of death) or a court application to vary the trust may be options.
CGT uplift on the IPDI life tenant's death — washing out gains
One of the most valuable tax features of an IPDI trust is the CGT uplift on the life tenant's death. Section 72 TCGA 1992 provides that where a qualifying interest in possession in a settlement ends on the death of the person entitled (i.e., the life tenant dies), the trust property is treated as disposed of and immediately reacquired at market value at the date of death. The effect: all unrealised CGT gains in the IPDI trust — gains that have accrued since the asset was originally settled or acquired by the trust — are completely eliminated at the life tenant's death. The remainder beneficiaries (the children who inherit the trust assets on the life tenant's death) inherit the assets at market value at the date of death, with no CGT liability on the pre-death gains. Example: the IPDI trust holds shares originally worth £100k; by the time the life tenant dies, the shares are worth £400k. Without the CGT uplift: CGT on £300k gain (if the trust sold the shares) at 20% (trust CGT rate) = £60k CGT. With the uplift (s72 TCGA): the shares are deemed disposed of and reacquired at £400k on the life tenant's death; no CGT on the £300k gain; the children inherit at £400k with no CGT debt. This CGT uplift applies to ALL assets in the IPDI trust — not just the home. It is an extremely valuable feature, particularly for trusts holding shares or investment portfolios with large unrealised gains. Contrast with a discretionary trust: the s72 TCGA uplift does NOT apply to discretionary trusts (no qualifying interest in possession). Gains in a discretionary trust do NOT wash out on any beneficiary's death — the accumulated CGT follows the trust and is eventually payable when the assets are sold or distributed.
IPDI ending in lifetime — CLT risk and periodic charge exposure
A significant risk with IPDI trusts is what happens if the IPDI ends during the life tenant's lifetime. If the life tenant voluntarily surrenders (gives up) their interest in the IPDI — for example, they decide they no longer need the trust income and agree to let the assets go directly to the children — the IPDI ceases to be a QIP from that moment. Under s52 IHTA 1984, the ending of an interest in possession (other than on death) is treated as a transfer of value by the life tenant. This transfer is a CHARGEABLE LIFETIME TRANSFER (CLT) — not a PET (no 7yr clock; an immediate lifetime charge). If the value of the IPDI assets is above the NRB (£325k) at the time the IPDI ends, IHT at 20% is charged on the excess. The trust then becomes a RELEVANT PROPERTY trust (a discretionary trust) — subject to the full periodic (s64 IHTA) and exit (s65 IHTA) charge regime from the date of conversion. The original date of the settlement for periodic charge purposes is the date the will trust was created (the date of death of the first spouse) — so the first 10-year periodic charge anniversary could be approaching quickly if the life tenant has lived for several years after the first death. Planning: do NOT end an IPDI in lifetime without careful IHT and CGT analysis. The CLT charge and the conversion to relevant property regime may cost more than the intended benefit of distributing the assets directly. Deed of appointment to end an IPDI: if the trustees want to advance capital out of the IPDI trust to a beneficiary, they should take specialist legal and tax advice — the method of distribution matters. A distribution to the life tenant: not a CLT (it's from their own 'estate' assets). A distribution to the remainder beneficiaries during the life tenant's lifetime: ends the IPDI in part or whole; CLT risk.
Frequently Asked Questions
What is an IPDI trust for inheritance tax?
An Immediate Post-Death Interest (IPDI) trust is defined in s49A IHTA 1984. It is an interest in possession trust created on death (by will or intestacy) where the beneficiary's (life tenant's) interest in possession subsists immediately from the time the trust is created. The key IHT features: (1) the IPDI trust assets ARE in the life tenant's IHT estate on their death (s49(1) IHTA — qualifying interest in possession); (2) the RNRB (s8D/s8H IHTA) applies if the home in the IPDI passes to direct descendants on the life tenant's death — unlike a discretionary trust which loses the RNRB; (3) CGT uplift on the life tenant's death (s72 TCGA) washes out all unrealised gains in the trust; (4) no periodic IHT charges or exit charges while the IPDI subsists (not relevant property). Most commonly used as a 'surviving spouse life interest trust' in a will — giving the surviving spouse income and use of assets for life, with capital passing to children on the survivor's death.
Does an IPDI trust qualify for the Residence Nil Rate Band?
Yes — this is the key RNRB advantage of an IPDI over a discretionary trust. Section 8H IHTA 1984 specifically provides that the RNRB (£175k per person) applies to an IPDI if the qualifying residential interest (the home) in the trust closely inherits to direct descendants (children, grandchildren, step-children) on the life tenant's death. Because the life tenant is treated as owning the IPDI assets (s49(1) IHTA), when they die and the home passes to direct descendants under the trust terms, the RNRB is available — exactly as if the life tenant owned the home outright. Contrast: if the home is in a discretionary trust, the RNRB is LOST (a discretionary trust is not a closely inherited structure). For many families using a surviving spouse's life interest trust in their will, using an IPDI structure (rather than a discretionary trust) preserves up to £70,000 in IHT (40% × £175k).
What is the difference between an IPDI trust and a discretionary trust for IHT?
The main IHT differences: (1) RNRB: IPDI preserves RNRB (s8H IHTA) if home passes to direct descendants on life tenant's death; discretionary trust LOSES the RNRB. (2) Estate inclusion: IPDI assets IN life tenant's estate (s49(1) IHTA); discretionary trust assets NOT in any beneficiary's estate. (3) CGT uplift: IPDI gets s72 TCGA CGT uplift on life tenant's death (gains washed out); discretionary trust does NOT get this uplift. (4) Periodic charges: IPDI has NO periodic or exit IHT charges; discretionary trust has 10-yearly periodic charge (s64 IHTA — up to 6% of value above NRB) and exit charges (s65 IHTA). (5) Flexibility: IPDI is less flexible (life tenant has a right to income; harder to adjust); discretionary trust is more flexible (trustees can adapt distributions). Overall: for a surviving spouse life interest trust where the main goal is protecting the spouse while ensuring the home and assets pass to children, the IPDI is typically more IHT-efficient than a discretionary trust due to the RNRB preservation and CGT uplift.
What happens to the IPDI trust when the life tenant surrenders their interest?
If the life tenant voluntarily gives up (surrenders or assigns) their IPDI during their lifetime, this is a chargeable lifetime transfer (CLT — s52 IHTA 1984). IHT at 20% is immediately charged on the value of the IPDI assets above the available NRB (cumulated with other CLTs in the preceding 7 years). The trust then converts from a qualifying interest in possession (QIP) to a relevant property trust (discretionary-type), subject to periodic charges (s64 IHTA — 10yr anniversary) and exit charges (s65 IHTA) from that point. The CGT uplift (s72 TCGA) does NOT apply on a lifetime surrender — the trust's accumulated CGT gains remain in the trust. This makes voluntary surrender of an IPDI potentially very costly. Any decision to end an IPDI in lifetime should only be taken after specialist IHT and CGT advice.
Can an IPDI trust protect against a second marriage or care home risks?
Yes — an IPDI trust created by will for a surviving spouse provides valuable protection in both scenarios. Second marriage protection: the surviving spouse has a right to income (or use of the property) from the IPDI trust for life, but they CANNOT direct what happens to the capital on their death — the trust terms (set in the first deceased's will) control where the capital goes on the survivor's death (typically to the children). Even if the survivor remarries, they cannot leave the IPDI trust capital to their new partner. This protects the children's ultimate inheritance. Care home protection: depending on the trust terms and how the local authority applies its rules (Care Act 2014), a life interest trust where the surviving spouse has only an income interest (not capital entitlement) may reduce the capital assessed by the local authority in a means test, though this is complex and varies by authority. Note: if the IPDI trust holds the family home and the surviving spouse continues to live there, that property IS likely to be disregarded by the local authority in the means test (mandatory disregard while spouse lives there — regardless of the trust structure).
An IPDI Trust in Your Will Saves IHT and Protects Your Family
A surviving spouse life interest trust (IPDI structure) in your will preserves the RNRB, provides CGT uplift, and protects children from a future remarriage — all without periodic charges. Start with a WillSafe will kit from £39.99.
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