Nil-Rate Band Discretionary Trust UK: How NRB Trusts in Wills Work for IHT Planning (2026)
An NRB discretionary trust directs the NRB amount (£325,000) into a discretionary trust on the first spouse's death, preserving it for children while allowing the surviving spouse access as a discretionary beneficiary. Once the cornerstone of married-couple IHT planning, the transferred NRB (2007) has changed the landscape — but NRB trusts remain valuable for asset protection, care home planning, and blended families.
| Feature | NRB Discretionary Trust | Transferred NRB (No Trust) | IPDI Trust |
|---|---|---|---|
| IHT saving on first death | Uses deceased's NRB on 1st death | NRB transferred to survivor | Spousal exemption — no IHT |
| Surviving spouse access | Discretionary — no fixed right | Full access (assets pass outright) | Life interest (income; possible capital) |
| Assets in surviving spouse estate? | No (in trust) | Yes (owned outright) | Yes (life interest in estate) |
| Care home fee protection | Possible (specialist advice needed) | No | Limited |
| RNRB available? | Risk if home in trust — take advice | Yes (on 2nd death) | Yes (RNRB on remaindermen) |
| 10yr periodic / exit charges | Yes (typically minimal) | N/A | No (IPDI — not relevant property) |
| Asset protection from 2nd marriage | Yes | No | Partial (capital discretionary) |
NRB Discretionary Trusts: Complete Guide
What is a Nil-Rate Band Discretionary Trust?
A Nil-Rate Band (NRB) Discretionary Trust (sometimes called an NRB will trust, nil-rate band trust, or NRB debt scheme) is a trust created in a will that directs assets up to the NRB (currently £325,000) into a discretionary trust on the death of the first spouse or civil partner, rather than passing those assets outright to the surviving spouse. The discretionary trust is a 'relevant property trust' under Part III IHTA 1984 — meaning it is subject to the 10-year periodic charge (s64 IHTA 1984) and exit charges (s65 IHTA 1984) rather than the usual estate IHT. Beneficiaries of the trust are typically the children (as primary beneficiaries) and may include the surviving spouse (as a discretionary beneficiary — they can receive income or capital at the trustees' discretion but do not have a fixed entitlement). The surviving spouse is NOT the life tenant of an NRB discretionary trust — they are merely a potential discretionary beneficiary. This distinction is crucial: because the surviving spouse does not have a legal right to the trust assets, the assets are not in the surviving spouse's estate for IHT purposes. The NRB amount directed into the trust uses the deceased's NRB to shelter the assets from IHT on the first death, while the rest of the estate passes to the surviving spouse under the spousal exemption.
Why NRB trusts were essential before October 2007
Before 9 October 2007, there was no transferred NRB (s8A IHTA 1984). Each spouse had their own NRB (then £300,000), but it was 'use it or lose it' — if a spouse left everything to their partner under the spousal exemption, their NRB was entirely wasted. On the survivor's death, only one NRB was available (the survivor's own). NRB trusts solved this problem: on the first death, the NRB amount went into a trust (using the deceased's NRB); the balance passed to the surviving spouse under the spousal exemption; on the second death, the survivor's NRB was still fully available. Effectively, both NRBs were used — just at different times. This was the standard married couple will structure from the 1980s through to 2007. The introduction of the transferred NRB on 9 October 2007 (applicable to deaths from that date) changed the calculation — it became possible to pass the entire estate to the surviving spouse and still claim two NRBs on the second death. This reduced the pure IHT motivation for NRB trusts for many couples.
Why NRB trusts are still used today
Despite the transferred NRB, NRB discretionary trusts are still widely used for several non-pure-IHT reasons: (1) Care home fee planning: assets in a discretionary trust are not in the surviving spouse's estate — they may not be assessable for means-tested care home fees assessment (though this is a complex area with HMRC and local authority scrutiny; professional advice is essential). The trust preserves the NRB assets for the family even if the surviving spouse later goes into care; (2) Second marriage / blended families: if either spouse has children from a previous relationship, an NRB trust on the first death ensures the NRB assets are preserved for all children, rather than potentially being spent or redirected by the surviving spouse in a later will or second marriage; (3) Asset protection for children: assets in a discretionary trust are protected from the surviving spouse's future creditors, a later divorce settlement (if the spouse remarries), or bankruptcy; (4) Flexibility: the trustees (often the children) can appoint trust assets at their discretion — responding to changing tax law, beneficiary circumstances, or family needs; (5) Guarding against future NRB changes: if Parliament ever removed or significantly restricted the transferred NRB, estates with an NRB trust in place on the first death would have already used the deceased's NRB — a hedge against legislative change.
The relevant property regime: 10-year periodic charge and exit charges
An NRB discretionary trust is a relevant property trust. It is subject to: (1) Ten-year periodic charge (s64 IHTA 1984): every 10 years after the trust is created, a charge of up to 6% of the trust's value above the NRB is levied. Since the trust was funded with assets equal to the NRB at the date of death (or typically up to the NRB), the trust value at the 10-year charge is likely still below the NRB — meaning the charge may be nil or minimal. The 10-year charge uses the NRB at the date of the charge (not the date the trust was created); (2) Exit charges (s65 IHTA 1984): when assets leave the trust (distributed to beneficiaries), a proportionate exit charge may apply based on the time elapsed since the last 10-year charge. Again, for NRB trusts, the exit charge is typically small or nil if the trust value is below the NRB at the time. In practice, an NRB trust funded with exactly the NRB at the date of death, with moderate growth, is unlikely to face meaningful periodic or exit charges over the typical 10–20 year life of the trust. The combined IHT benefit of the NRB trust (saving up to £130,000 in IHT on the first death) greatly exceeds the potential periodic/exit charges for most families.
NRB trust and the RNRB: an important interaction
A key disadvantage of using an NRB trust in a will is the potential loss of the Residence Nil-Rate Band (RNRB — s8D IHTA 1984). The RNRB requires the qualifying residential interest (main home) to pass to direct descendants. If the home is directed into the NRB trust as one of the assets (to fund the NRB amount), the home does NOT pass to direct descendants — it passes to the trustees of a discretionary trust. The RNRB is not available for the home in an NRB discretionary trust. Options to avoid losing the RNRB while still using an NRB trust: (1) Fund the NRB trust with other assets (cash, investments, or a loan note) rather than the home itself — the home can then pass to the surviving spouse and ultimately to the children on the second death, claiming both the transferred RNRB and the survivor's own RNRB; (2) Use an Immediate Post-Death Interest (IPDI) trust for the home instead — an IPDI for the surviving spouse with children as remaindermen preserves the RNRB on the second death; (3) Leave the home outright to the surviving spouse (or to children in the will) — the RNRB is claimed outright, and the NRB trust is funded from other estate assets. Leaving the home in a standard NRB discretionary trust and losing the RNRB costs up to £70,000 in avoidable IHT. Get professional advice when combining NRB trusts with RNRB planning.
NRB loan scheme: an alternative approach
Where a couple has an older will containing an NRB trust, or where the NRB amount is owed to the trust by the surviving spouse, a loan note approach may be used. Under the NRB debt or loan scheme: on the first death, instead of physical assets going into the trust, the trust holds a debt (an IOU) owed to it by the surviving spouse equal to the NRB. The surviving spouse effectively borrows the NRB amount from the trust and keeps all the assets (simplifying estate administration). The loan is included as a liability in the surviving spouse's estate on their death — reducing the taxable estate by the NRB amount. This achieves a similar IHT result to a traditional NRB trust, but with less complexity: the surviving spouse retains all the assets; the loan is deducted from the estate on death; children receive the loan amount from the estate (as trust beneficiaries). The loan should be documented carefully, interest-bearing or reviewed regularly, and ideally repaid or varied to reflect the surviving spouse's wishes. HMRC scrutinises artificial or uncommercial loan arrangements (s103 FA1986 — associated operations).
Frequently Asked Questions
What is a nil-rate band discretionary trust in a will?
An NRB discretionary trust is a will trust that directs assets up to the NRB (£325,000) into a discretionary trust on the first spouse's death, rather than passing them outright to the surviving spouse. The trust's beneficiaries are typically the children (with the surviving spouse as an additional discretionary beneficiary). This uses the deceased's NRB on the first death, while the remainder of the estate passes to the surviving spouse IHT-free under the spousal exemption (s18 IHTA 1984).
Do I still need an NRB trust in my will now that transferred NRBs exist?
For pure IHT saving, the transferred NRB (s8A IHTA 1984) makes NRB trusts less essential — you can pass everything to your spouse and still claim two NRBs on the second death. However, NRB trusts are still valuable for: (1) care home fee planning (trust assets may not be assessable for means-testing); (2) blended families / second marriages (preserving assets for children from previous relationships); (3) protecting children's inheritance against the survivor's future creditors, remarriage, or changed will; (4) guarding against future law changes to the transferred NRB. Take professional advice to decide whether an NRB trust is right for your circumstances.
Does an NRB trust in a will affect the Residence Nil-Rate Band?
Yes — if the home is directed into the NRB trust, the RNRB (s8D IHTA 1984) is typically lost, because the RNRB requires the home to pass to direct descendants, not to a discretionary trust. This can cost up to £70,000 in avoidable IHT. To avoid this: fund the NRB trust from other assets (cash, investments) rather than the home; let the home pass to the surviving spouse or directly to children; use an IPDI trust for the home instead of putting it in the NRB trust. Get professional advice when combining NRB trust planning with the RNRB.
What are the tax charges on a nil-rate band discretionary trust?
An NRB discretionary trust is a relevant property trust subject to: (1) 10-year periodic charge (s64 IHTA 1984) — up to 6% of trust value above the NRB every 10 years; (2) Exit charges (s65 IHTA 1984) — proportionate charge when assets leave the trust. In practice, an NRB trust funded with exactly the NRB at death, with moderate growth, will typically face minimal or nil charges — because the trust value stays close to the NRB at the 10-year anniversary.
My will was written before 2007 and contains an NRB trust — should I update it?
Pre-2007 NRB trusts should be reviewed with a professional. The transferred NRB (introduced October 2007) has changed the IHT landscape — many pre-2007 NRB trusts no longer achieve additional IHT savings compared to leaving everything to the surviving spouse. However, the non-IHT reasons to keep an NRB trust (care home fees, second marriages, asset protection) may still be valid. Also check whether the NRB trust would capture the home (losing the RNRB worth up to £70,000). If the trust is not appropriate, a deed of variation after the first death (within 2 years) or an amendment to the will during life may be appropriate.
Review Your Will — Especially if Written Before 2017
Wills written before 2017 may contain NRB trust clauses that interact poorly with the RNRB. A review could save up to £70,000 in avoidable IHT. WillSafe will kits for England and Wales make updating your will straightforward and affordable.
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