IHT and Life Interest Trusts UK: Immediate Post-Death Interests (IPDI), Spousal Trusts, and IHT (2026)
A life interest trust (IPDI) created by will gives the life tenant the right to income for life — and the life tenant is treated as owning the capital for IHT. A spousal IPDI defers IHT using the spousal exemption on first death — the full trust value is in the surviving spouse's estate on their death. This is the foundation of second-marriage and blended-family IHT planning.
| Trust Type | Spousal Exemption on 1st Death? | Periodic Charges? | On Life Tenant's Death |
|---|---|---|---|
| Spousal IPDI (qualifying) | Yes (full exemption) | No | Full trust in spouse's estate for IHT |
| IPDI for non-spouse | No | No (while IPDI continues) | Trust capital in life tenant's estate for IHT |
| Discretionary trust (spouse beneficiary) | No | Yes — 6% every 10yr above NRB | Separate trust assets; not in life tenant's estate |
| NRB Discretionary Will Trust | N/A (NRB only) | Nil (if within NRB) | Passes per trust deed; not in spouse's estate |
| Bare trust (all assets to beneficiary) | Yes (if to spouse) | No | Beneficiary deemed absolute owner |
| Bereaved minor's trust (s71A IHTA) | No | No (while within s71A conditions) | Capital passes to minor at 18; not relevant property |
Life Interest Trusts and IHT: A Complete Guide
What is a life interest trust and how does it work?
A life interest trust (also called an interest in possession trust) is a trust in which one beneficiary (the life tenant) has the right to receive the income produced by the trust fund during their lifetime (or for a fixed period). On the life tenant's death (or the end of the trust period), the capital passes to the remainder beneficiaries. Example: a will creates a trust of the matrimonial home for the surviving spouse for life, with the property then passing to the testator's children. The surviving spouse (life tenant) can live in the property and receive any rental income during their lifetime; on the spouse's death, the property passes to the children (remainder beneficiaries). Key feature: unlike a discretionary trust (where the trustees decide who receives what), a life interest trust gives the life tenant a fixed entitlement to income. The life tenant cannot typically access the capital (unless the trustees have an overriding power). Trustees must invest the trust fund to produce income for the life tenant while also preserving the capital for the remainder beneficiaries — a balancing obligation.
Immediate Post-Death Interest (IPDI): s49A IHTA 1984
An Immediate Post-Death Interest (IPDI) is a specific type of life interest trust created by will (or intestacy) that benefits from more favourable IHT treatment than the general relevant property regime. The conditions for an IPDI (s49A IHTA 1984): (1) The interest in possession arises immediately on death (not on a future event); (2) It was created by will or by the intestacy rules; (3) It is not a disabled person's interest (which has its own rules). IPDIs are treated as qualifying interests in possession under s49 IHTA 1984 — the life tenant is treated as if they were the beneficial owner of the underlying trust capital for IHT purposes. This means: the trust capital is included in the life tenant's IHT estate on their death; the life tenant can make a PET of their interest in possession (by releasing the IPDI, the remainder beneficiaries' interest accelerates — a PET by the life tenant equal to the value of the interest released). Because the life tenant is treated as owning the trust capital, the trust itself is not subject to the relevant property regime periodic charges or exit charges during the IPDI period.
Spousal IPDI: IHT deferral on first death
The most common application of a life interest trust will is where the surviving spouse is the life tenant — a spousal IPDI. The IHT treatment: on the first death, the estate passes into the IPDI trust for the surviving spouse. Under s18 IHTA 1984 (spousal exemption), transfers between spouses are exempt from IHT — the trust capital passes to the spouse's interest (as the life tenant deemed owner) exempt from IHT. On the surviving spouse's death, the IPDI ends — the full trust capital is included in the surviving spouse's estate as if they owned it outright. The RNRB may be available if the home passes to direct descendants on the surviving spouse's death. Why use a spousal IPDI rather than an outright gift to the spouse? (1) Blended families: the surviving spouse benefits for life, but the capital is protected for the testator's children from a first marriage — the spouse cannot spend or re-gift the capital. (2) Protection from the spouse's remarriage: on remarriage, the trust terms remain — the capital eventually passes to the intended beneficiaries regardless of the spouse's new relationships. (3) Care home protection: the trust capital may be better protected from means-tested care home fees (though this is complex and HMRC/local authorities scrutinise this closely).
Life interest trusts for non-spouse beneficiaries
Where the life tenant is not the surviving spouse (for example, a will leaves a life interest to an adult child, or to a second wife who is not entitled to the spousal exemption because they are not yet married at the date of death), the IPDI treatment still applies — the life tenant is deemed to own the capital, and the trust is not in the relevant property regime during the IPDI. However, if the will creates a discretionary trust (rather than an IPDI) for a non-spouse beneficiary, the trust is in the relevant property regime immediately — periodic charges (6% every 10 years) and exit charges apply. Important distinction: an IPDI must give the life tenant a fixed entitlement to income from the date of death; a discretionary trust gives trustees discretion over who receives income and capital. Where the will gives the trustees discretion over whether to pay income to the surviving spouse, this may be a discretionary trust rather than an IPDI — and the favourable spousal IPDI treatment may not apply.
RNRB and spousal IPDI: the residence nil-rate band
The RNRB (Residence Nil-Rate Band — up to £175,000 per individual in 2025–26) is available where the deceased's home passes to their direct descendants on death. For an IPDI, the key question is: does the home pass to the life tenant under the IPDI, or does it pass directly to the remainder beneficiaries on the life tenant's death? For RNRB on the first death: the home is in the IPDI trust for the surviving spouse. The RNRB is not available on the first death (the home is not passing to direct descendants — it is in the spousal trust). However, the first deceased's unused RNRB transfers to the survivor (s8G IHTA 1984 — 100% transferred RNRB). On the surviving spouse's death: the IPDI ends and the home passes to the children (remainder beneficiaries). If the children are direct descendants (including stepchildren — s8K(4) IHTA 1984), the full RNRB is available on the survivor's death (surviving spouse's own RNRB + transferred RNRB from first deceased = up to £350,000). The IPDI structure therefore preserves both NRBs and both RNRBs — £1,000,000 combined threshold — while giving the surviving spouse life interest protection.
Drafting and IHT planning: IPDI vs NRB discretionary trust
The two main IHT structures for a married couple's will are: (1) IPDI for surviving spouse: full spousal exemption on first death; all NRB and RNRB transferred to survivor; full trust value in survivor's estate on second death; suitable where the estate is likely to remain below the combined NRB + RNRB threshold on second death, or where blended family protection is the priority. (2) NRB Discretionary Will Trust (NRBDT) on first death: NRB (£325,000) passes into a discretionary trust on first death; remainder passes to spouse outright or in a secondary IPDI; the NRB trust is below the periodic charge threshold (nil periodic charge if it stays within the NRB); this structure 'banks' the NRB on first death — used before the introduced transferable NRB, but less tax-effective today (because the NRB is fully transferable). Modern practice: for most married couples where the estate is below the combined threshold (£1m with NRB + RNRB), a simple mutual will with IPDI for the surviving spouse and outright to children on second death is sufficient. For larger estates, a combination of NRB/RNRB utilisation and a spousal IPDI — combined with lifetime PETs and BPR — provides the most effective IHT outcome.
Frequently Asked Questions
What is an IPDI (Immediate Post-Death Interest) for IHT?
An IPDI is a life interest trust created by will (or intestacy) where a beneficiary has the right to income from the trust immediately on death. Under s49A IHTA 1984, the life tenant is treated as if they owned the trust capital for IHT purposes. A spousal IPDI qualifies for the spousal exemption on first death — no IHT on the trust fund while the surviving spouse is alive. On the surviving spouse's death, the full trust capital is included in their estate for IHT. The trust is not in the relevant property regime (no periodic or exit charges) during the IPDI period.
Does a life interest trust avoid inheritance tax?
A spousal IPDI defers IHT — it does not avoid it. IHT is not charged on first death (because of the spousal exemption), but the full trust value is in the surviving spouse's estate for IHT on their death. The advantage is time — the deferral allows further planning (PETs, gifts, investment in BPR assets) between the two deaths. It also protects the capital for chosen remainder beneficiaries (e.g. children from a first marriage) without triggering immediate IHT.
Can a life interest trust qualify for the RNRB?
Yes. Where a spousal IPDI holds the matrimonial home and the home passes to direct descendants (children, stepchildren, grandchildren) on the surviving spouse's death, the RNRB is available on the second death. The first deceased's RNRB is transferred to the survivor (100% transferred RNRB under s8G IHTA 1984). The combined RNRB on the survivor's death can be up to £350,000 (both individuals' RNRBs) — combined with the transferred NRB to give a total threshold of up to £1,000,000.
What is the difference between an IPDI and a discretionary trust for IHT?
An IPDI gives the life tenant a fixed entitlement to income immediately on death — they are treated as owning the capital (s49 IHTA 1984). Spousal IPDI: full spousal exemption on first death; no periodic charges; trust capital in spouse's estate on death. A discretionary trust gives trustees complete discretion over income and capital payments — from day one it is in the relevant property regime. This means: no spousal exemption on first death (if the surviving spouse is not a fixed-entitlement life tenant); 6% periodic charge on trust value above NRB every 10 years; exit charges on distributions.
Can a life interest trust protect assets from care home fees?
This is a complex area. The surviving spouse (life tenant) may be means-tested for care home fees by the local authority based on their right to income from the trust, and potentially the capital if they are the sole life tenant. Local authorities may challenge a life interest trust as deliberate deprivation of assets if it was set up with a view to avoiding care home fees. The trust must be created for genuine estate planning reasons (protection of children's inheritance; blended family planning) — not primarily for care home fee avoidance. Specialist legal advice is essential before setting up a life interest trust with care home planning in mind.
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