Nil-Rate Band Will Trust IHT UK 2026: NRB Discretionary Trust on First Death, Loan Back to Survivor, TNRB Interaction, RNRB Risk, and Post-2008 Planning

Q: What is a nil-rate band discretionary will trust and why was it used?

A nil-rate band (NRB) discretionary will trust is a trust created by the first spouse's will that settles assets up to the nil-rate band (£325k in 2026-27) into a discretionary trust on the first spouse's death, rather than passing them to the surviving spouse (which would be spouse-exempt). This used the first spouse's NRB immediately on their death. Before the transferable nil-rate band (TNRB, introduced by Finance Act 2008), this was an essential IHT planning tool, without it, the first spouse's NRB was wasted (passed spouse-exempt to the survivor, absorbed into the larger combined estate). After TNRB, the NRB trust is less necessary for pure IHT saving (the TNRB automatically transfers the unused NRB to the survivor's estate). Today, NRB trusts are used primarily for non-IHT reasons: protecting assets for children from a first marriage (re-marriage risk), care home fees protection, and creditor protection.

Q: What is the loan back arrangement in a NRB will trust?

The loan back is a mechanism where the trustees of the NRB will trust (after the first spouse's death) lend the trust assets (£325k) back to the surviving spouse under a formal loan agreement. The surviving spouse has access to and use of the full trust assets (as if they owned them) while the trust loan remains an outstanding liability (a debt) against their estate. On the surviving spouse's death: the £325k loan is a deductible liability under s162 IHTA 1984, reducing the taxable estate by £325k (saving up to £130k IHT at 40%). The loan must be a genuine documented commercial loan, not a sham. The loan funds must NOT be used to acquire assets that are IHT-exempt (e.g., BPR-qualifying AIM shares), or the deduction will be denied under s162A IHTA (the artificial debt rule introduced by Finance Act 2013).

Q: Does a NRB discretionary will trust affect the Residence Nil-Rate Band?

Yes, a NRB discretionary will trust (a general discretionary trust) does NOT qualify for the Residence Nil-Rate Band (RNRB) on the first spouse's death. The RNRB requires the qualifying residential interest (the family home) to be 'closely inherited' by a direct descendant or left to a qualifying trust (a bereaved minor's trust, age 18-25 trust, or disabled person's trust). A general NRB discretionary trust is not a qualifying trust for RNRB. If the family home is included in the NRB legacy, the RNRB is lost on the first death, costing up to £70k IHT (40% × £175k RNRB). Best practice: fund the NRB trust with cash and investments (not the family home); leave the home to the surviving spouse; claim the RNRB and TRNRB on the second death.

Q: Is the NRB will trust still useful after the transferable nil-rate band?

The transferable nil-rate band (TNRB, Finance Act 2008) allows any unused proportion of the first spouse's NRB to transfer to the surviving spouse's estate. For most couples, leaving everything to the survivor (spouse-exempt) + claiming the TNRB on the second death achieves the same IHT result as a NRB will trust, without the complexity. However, the NRB will trust remains useful for: (1) re-marriage protection, ring-fencing £325k for children of the first marriage immediately; (2) care home fees protection, assets in the NRB trust are not in the survivor's personal estate for means-testing; (3) large estates (above £1m combined) where the NRB trust loan back can meaningfully reduce the survivor's taxable estate. Existing NRB trusts (created before TNRB was introduced in 2008) should be reviewed, they may no longer be the most efficient structure.

Q: What are the periodic charges on a NRB will trust?

A NRB discretionary will trust is a relevant property trust, subject to 10-year periodic charges under s64 IHTA 1984. The periodic charge is calculated at approximately 6% of the trust value above the nil-rate band at the 10-year anniversary. For a typical NRB trust holding around £325k: if the trust has grown to (say) £350k at year 10 and the NRB is £325k: charge = 6% × (£350k − £325k) = 6% × £25k = £1,500. Modest in practice. If the loan back has been made and the trust's main asset is a loan receivable (repayable on the survivor's death), the trust value = the loan balance (~£325k). Periodic charges on a loan balance of £325k at NRB of £325k: charge = 0% (trust value within NRB). Periodic charges are rarely significant for NRB will trusts.

The NRB discretionary will trust, settling £325k into a family trust on the first spouse's death, was a cornerstone of IHT planning before the transferable nil-rate band (2008). Today its IHT benefit is limited, but it remains valuable for re-marriage protection, care home fees shielding, and the loan back debt deduction under s162 IHTA. The family home should never be placed in the NRB trust, preserve the RNRB.

NRB Will Trust: Still Useful for Re-Marriage and Care Home Protection, But IHT Case Often Weaker Post-TNRB

NRB discretionary will trust: settles £325k (NRB) into trust on first death. Survivors as discretionary beneficiaries. Loan back to survivor (s162 IHTA debt deduction on second death, up to £130k IHT saved). s162A IHTA: loan deduction DENIED if funds used to acquire BPR/APR-qualifying assets. RNRB risk: NRB trust does NOT qualify for RNRB, do not include family home. Fund NRB trust with cash/investments only. TNRB post-2008: first spouse's unused NRB transfers to survivor, eliminates the main IHT reason for NRB trust for most couples. Periodic charges: 10yr charges on NRB trust (typically very low if trust value ≤ NRB). Main reasons to use: re-marriage asset protection for children; care home fees means-test protection; large estates where loan back benefit exceeds RNRB/TNRB considerations.

Aspect	Rule / Principle	Example / Scenario	Planning Guidance
How the NRB discretionary will trust works and the loan back arrangement	THE NRB DISCRETIONARY WILL TRUST STRUCTURE: the first spouse's will is drafted as follows: (1) NRB LEGACY: 'I leave to my trustees a sum equal to my available nil-rate band for IHT at my death [up to £325k in 2026-27] to hold on discretionary trust for my family (class of beneficiaries typically: surviving spouse, children, grandchildren).'; (2) RESIDUE TO SURVIVING SPOUSE: the remainder of the estate passes to the surviving spouse outright (or on a life interest, IPDI trust). THE TRUST IS A DISCRETIONARY TRUST: the NRB trust is a relevant property trust (s58-69 IHTA). The surviving spouse is a POTENTIAL beneficiary (but not the only one; other beneficiaries are the children). The trustees have full discretion to distribute income and capital to any beneficiary in the class. IHT ON FIRST DEATH: (a) NRB legacy (£325k): CLT of £325k, within NRB, no IHT. The trust is established with £325k. (b) Residue to surviving spouse: spouse exempt. (c) TNRB: the first spouse's NRB is used by the trust (£325k used). TNRB available to second spouse's estate = 0% (first NRB fully used). THE LOAN BACK: the trustees of the NRB trust (who may include the surviving spouse as co-trustee) lend the £325k back to the surviving spouse under a formal loan agreement. The loan is: (a) documented in writing; (b) typically INTEREST-FREE; (c) repayable on demand or on the surviving spouse's death. EFFECT ON SURVIVOR'S ESTATE: the surviving spouse holds the £325k 'loaned' funds. On their death: the £325k loan is an outstanding liability (a debt owed by the estate to the NRB trust). Under s162 IHTA, genuine debts owed by the deceased are deductible from the estate for IHT. Result: the surviving spouse's estate is reduced by £325k (the outstanding loan), reducing IHT by up to 40% × £325k = £130k. The £325k repays to the NRB trust on the survivor's death, passing to the children as trust beneficiaries without further IHT (the trust was established on the first death, the 10-year charges apply to the NRB trust during its life; the assets within the trust are distributed to the children on the second death potentially subject to exit charges). HMRC VIEW ON LOAN BACKS: HMRC accepts loan backs as legitimate provided: (a) the loan is a genuine commercial arrangement (not a sham); (b) there is a valid trust (the NRB trust genuinely holds assets for the family); (c) the loan is properly documented; (d) s162A IHTA (the artificial debt rule introduced by Finance Act 2013) does NOT apply. s162A IHTA: a deduction for a debt is NOT allowed if the debt was incurred to finance the acquisition or maintenance of excluded property or if the arrangements lack commercial substance. An NRB trust loan to the survivor is NOT excluded property, it is a genuine commercial arrangement if properly structured.	NRB DISCRETIONARY WILL TRUST, WORKED EXAMPLE: David (age 68) and Susan (age 65) are married. Combined estates: David £600k; Susan £400k. Total: £1m. David dies first. His will: NRB legacy of £325k to discretionary trust (beneficiaries: Susan, children, grandchildren). Residue (£275k) to Susan outright (spouse exempt). IHT ON DAVID'S DEATH: £325k to NRB trust, within NRB (£325k threshold). No IHT. £275k to Susan, spouse exempt. No IHT. TOTAL IHT ON DAVID'S DEATH: £0. TNRB POSITION: David's NRB used by trust (£325k used, 100% used). TNRB to Susan = £0 (no unused NRB to transfer). SUSAN'S ESTATE ON HER DEATH: Susan's own assets: £400k + £275k (from David) = £675k. PLUS: NRB trust loans £325k back to Susan. Susan's estate now effectively holds: own assets (£675k) + trust loan funds (£325k, but loan outstanding = repay on death). NET ESTATE FOR IHT: £675k + £325k loan funds held − £325k loan outstanding = £675k. IHT: 40% × (£675k − £325k Susan's NRB − £175k Susan's RNRB) = 40% × £175k = £70k. COMPARE WITH NO NRB TRUST: David leaves everything to Susan (all £600k spouse-exempt). Susan has combined estate: £400k + £600k = £1m. NRB: Susan's own (£325k) + TNRB from David (£325k, his NRB fully unused) = £650k. RNRB: £175k + TRNRB £175k = £350k. Total threshold = £1m. IHT = 40% × (£1m − £1m) = £0. CONCLUSION: in this example, leaving everything to Susan outright with TNRB gives £0 IHT. The NRB trust gives £70k IHT. THE NRB TRUST IS ACTUALLY WORSE IN THIS CASE because using the NRB on first death loses the TNRB on the second death. FOR LARGER ESTATES where the combined estate significantly exceeds the combined NRB + RNRB (£1m for a couple), the NRB trust may add more modest benefit. THE KEY BENEFIT IS NOT IHT, it is asset protection (re-marriage, care home) and ring-fencing for children.	WHEN IS THE NRB WILL TRUST STILL VALUABLE POST-TNRB? (1) RE-MARRIAGE PROTECTION: if the surviving spouse remarries, the NRB trust assets (£325k) are permanently ring-fenced for the children of the first marriage. The new spouse cannot touch them. The survivor's own estate (passed outright) is at risk of the new spouse inheriting, but the £325k in the NRB trust is protected. For couples with children where re-marriage risk exists: the NRB trust is a valuable protection tool independent of IHT efficiency. (2) CARE HOME FEES: if the survivor requires care home funding, their personal assets are means-tested. Assets in the NRB trust are NOT in the survivor's personal estate (they are trust assets, not the survivor's). The survivor's means-tested position excludes the NRB trust assets, potentially saving £325k × £1,000/week care home cost from the means-test. (3) CREDITOR PROTECTION: the NRB trust assets are protected from the survivor's personal creditors (e.g., if the survivor becomes bankrupt or insolvent). (4) IHT BENEFIT IS LIMITED FOR COUPLES WITH ESTATE ≤£1M: with the TNRB and TRNRB, a couple with a combined estate up to £1m can typically shelter everything from IHT without a NRB trust. For couples with estates significantly above £1m, the IHT benefit of the NRB trust is more nuanced, model the specific estate. (5) LOAN BACK + INVESTMENT GROWTH: if the £325k loan is invested by the surviving spouse and grows, the growth is in the survivor's taxable estate. If invested by the NRB trust and grows: the growth accumulates in the trust (relevant property, subject to 10yr charges, but growing outside the survivor's estate). The trust growth does not increase the IHT on the survivor's death. For young surviving spouses with investment income needs: the trust accumulation is more IHT-efficient.
RNRB and TRNRB with NRB will trusts; FA 2026 impact	RESIDENCE NIL-RATE BAND AND NRB WILL TRUSTS, THE KEY TENSION: the RNRB (£175k in 2026-27) applies where a qualifying residential interest (QRI, the family home) is 'closely inherited' by direct descendants (children, grandchildren). A NRB discretionary will trust does NOT qualify for the RNRB on the first death if the family home is in the NRB trust. WHY: the RNRB requires the QRI to be directly inherited by direct descendants OR left to a qualifying trust (a s71A bereaved minor's trust, s71D age 18-25 trust, or disabled person's trust, s89 IHTA). A general discretionary trust (the NRB trust) does NOT satisfy the RNRB 'closely inherited' test. PRACTICAL IMPACT: if the NRB will trust includes the family home (or a share of it): the RNRB is NOT available on the first death in respect of the home portion in the NRB trust. The survivor's RNRB on the second death is still available (if the home passes from the survivor's estate to direct descendants). THE BETTER APPROACH: to preserve the RNRB on the first death, the family home should NOT be included in the NRB legacy, instead, use other assets (cash, investments) to fund the NRB trust. The home passes to the survivor outright (or via IPDI), eligible for RNRB if the survivor leaves it to children. OR: use the TNRB approach (no NRB trust on first death), pass everything to the survivor, use the full TNRB + RNRB + TRNRB on the second death. FINANCE ACT 2026 IMPACT: the FA 2026 did not change the NRB, TNRB, RNRB, or TRNRB (all remain frozen until April 2030). The FA 2026's main IHT change was the £1m BPR/APR cap, which does not affect NRB will trusts directly (unless the trust holds BPR-qualifying assets). PERIODIC CHARGES ON THE NRB TRUST: the NRB trust is a relevant property trust. 10-year periodic charges apply: after 10yr, the charge is approximately 6% × (trust value − NRB at the 10-year date). If the NRB trust has grown to £400k by year 10, and NRB is £325k: charge = 6% × £75k = £4,500 per decade. Modest, but a consideration for very long-running trusts. THE LOAN BACK REDUCES THE PERIODIC CHARGE: if the trust lent £325k to the survivor and the survivor repays the loan (or dies), the trust's net assets may be limited, reducing the periodic charge base.	RNRB CONFLICT, NRB TRUST AND THE FAMILY HOME: Alan and Barbara (married). Alan's estate: £600k (including family home £400k). Barbara's estate: £300k. Alan's will: NRB legacy (£325k) to discretionary trust for family. Residue (£275k) to Barbara outright. IF THE NRB LEGACY INCLUDES THE FAMILY HOME: Alan's £325k NRB legacy to trust = £325k of assets (say: family home £325k share, investments £0). RNRB ON ALAN'S DEATH: the £325k share of the home is in the NRB discretionary trust. The discretionary trust does NOT qualify for RNRB. RNRB LOST: £175k RNRB not claimed on Alan's death. IHT saving lost: 40% × £175k = £70k. BETTER APPROACH: fund the NRB legacy with NON-PROPERTY assets. Alan's £325k NRB trust = cash/investments (£325k). Family home (£400k) passes entirely to Barbara (spousal exemption). Barbara's will: home to children (RNRB qualifies on Barbara's death). ON BARBARA'S DEATH: Barbara's estate: £300k + £275k from Alan + £400k home = £975k minus loan to NRB trust (£325k) = £650k net. Barbara's NRB (£325k) + RNRB (£175k) = £500k. IHT: 40% × (£650k − £500k) = £60k. COMPARE: Barbara's TNRB = £0 (Alan's NRB was used by the trust). TRNRB = Alan's RNRB was unused (home didn't go into a qualifying trust on Alan's death, Barbara received it, no RNRB claimed). Hmm: TRNRB = Alan's unused RNRB = £175k + Barbara's RNRB £175k = £350k combined RNRB. Total threshold on Barbara's death: £325k NRB + £350k combined RNRB = £675k. IHT: 40% × (£650k − £675k) = £0 IHT. THE NRB TRUST + NON-HOME FUNDING + RNRB STRATEGY ACHIEVES £0 IHT ON BARBARA'S DEATH. THE KEY: don't put the home in the NRB trust; fund it with cash/investments; leave the home to the spouse; claim TRNRB on the second death.	NRB WILL TRUST, BEST PRACTICE POST-TNRB: (1) ALWAYS MODEL THE SPECIFIC ESTATE: with the TNRB and RNRB, many couples are better off with simple mirror wills (everything to spouse, then to children) than with NRB trusts. Run the numbers for the specific estate values and asset mix before recommending a NRB trust. (2) FUND WITH NON-PROPERTY ASSETS: if using a NRB trust, ensure the family home is NOT included, preserve the RNRB and TRNRB for the survivor's death. (3) THE LOAN BACK: document the loan carefully: (a) written loan agreement (signed by the surviving spouse and the trustees); (b) specify the loan is on demand or repayable on the spouse's death; (c) interest-free (HMRC accepts interest-free loans as genuine debts, see HMRC IHTM28382); (d) ensure the trust actually holds the £325k (not just a paper transfer). (4) ASSETS TO PUT IN THE NRB TRUST: use cash, ISAs, investments, premium bonds, liquid assets that the surviving spouse can access via the loan. NOT: the family home; or assets that would trigger RNRB issues. (5) AVOID NRB TRUSTS WHERE: (a) combined estate < £1m (couple fully within TNRB + RNRB threshold); (b) there is no re-marriage risk; (c) the survivor is unlikely to need care home protection. Simple outright gifts with TNRB + RNRB claim is cleaner and achieves the same (or better) IHT result. (6) REVIEW EXISTING NRB TRUSTS: many wills drafted pre-2008 have NRB trusts. Post-TNRB, these may no longer be the most efficient structure. A will review (at minimum every 5yr) should assess whether the NRB trust remains appropriate given the current estate size, TNRB availability, and RNRB position. (7) PERIODIC CHARGES: if an NRB trust is established, calendar the 10-year anniversary for the periodic charge calculation. Consider winding up the trust before the 10-year anniversary if the circumstances have changed (e.g., if the loan back has been repaid and the trust assets are minimal).
The loan back: s162 IHTA debt deduction, s162A artificial debt rule, and HMRC scrutiny	S162 IHTA 1984, DEDUCTION FOR LIABILITIES: in calculating the value of a person's estate for IHT, liabilities that are legally enforceable against the estate are deducted. A loan from the NRB trust to the surviving spouse is a legally enforceable liability (the trust has a right to repayment). On the survivor's death: the outstanding loan reduces the taxable estate by the loan amount (up to £325k). S162A IHTA 1984 (INTRODUCED BY FINANCE ACT 2013, ARTIFICIAL DEBTS): s162A denies the deduction for a debt where: (a) the money borrowed was used to acquire, or to maintain or enhance the value of, an asset that is excluded property or exempt from IHT; OR (b) the arrangement lacks economic substance (broadly, an artificial scheme to avoid IHT). THE KEY QUESTION: does the loan back from the NRB trust satisfy s162? HMRC GUIDANCE (IHTM28382): HMRC accepts that a loan from a will trust (NRB trust) to the surviving spouse, where the loan is used by the survivor for general living purposes (not to acquire excluded property or IHT-exempt assets), is a valid deductible liability under s162. The loan back is NOT caught by s162A if: (a) the loan is a genuine debt (not a sham); (b) the trust is a genuine trust (assets legally transferred to trustees); (c) the loan is used for general purposes, NOT to buy assets that are exempt from IHT (e.g., not used to buy BPR-qualifying AIM shares or a business, which would be IHT-exempt). HMRC ANTI-AVOIDANCE CONCERN: if the survivor uses the borrowed £325k to buy BPR-qualifying assets (which become IHT-exempt on the survivor's death): (a) the trust loan deducts £325k from the estate AND (b) the BPR assets are exempt from IHT, a double benefit. s162A was introduced specifically to prevent this double benefit. If the loan is used to acquire BPR-qualifying assets, the deduction is denied under s162A. HMRC SCRUTINY: HMRC has increased scrutiny of loan back arrangements as part of their IHT planning review. Ensure: (a) the loan is documented before it is applied to any purpose; (b) the loan funds are genuinely used for general living purposes (not tax planning); (c) the trust holds the assets (£325k not immediately returned to the spouse informally); (d) the loan agreement is in place from the outset.	S162A LOAN BACK, WHAT NOT TO DO: Margaret dies. Her NRB will trust is established with £325k cash. The NRB trust loans the £325k to her surviving husband William. William uses the £325k to buy AIM shares (BPR-qualifying, 100% BPR after 2yr hold). On William's death 3yr later: his estate includes: own assets £500k. Loan from NRB trust: −£325k deductible (s162 IHTA). AIM shares (BPR): 100% exempt (BPR within FA 2026 £1m cap). EXPECTED RESULT: taxable estate = £500k + £325k AIM (exempt) − £325k loan = £500k. BUT: s162A IHTA! The £325k loan was used to ACQUIRE BPR-qualifying assets (the AIM shares). The deduction for the loan is DENIED. Taxable estate: £500k + £325k AIM (exempt) − £0 (loan denied) = £500k. LESSON: do NOT use the loan back funds to acquire BPR/APR-qualifying assets. Use the loan for: (a) day-to-day living expenses; (b) normal investments (ISAs, unit trusts, cash deposits, all IHT-taxable on death); (c) gifts (reducing the estate generally); (d) paying off a mortgage or other debts. CORRECT USE OF LOAN BACK: William uses the £325k for living expenses and normal investments. On William's death: own assets £400k (remaining after living expenses). Loan outstanding: £325k (deductible). Net taxable estate: £400k − £325k = £75k. IHT: 40% × (£75k − NRB available to William) = £0 if within NRB. The loan back dramatically reduces William's taxable estate, legitimately.	LOAN BACK, PRACTICAL REQUIREMENTS: (1) FORMAL LOAN AGREEMENT: execute a written loan agreement between the surviving spouse (borrower) and the NRB trust trustees (lender) as soon as possible after the first death. The agreement should specify: (a) loan amount (equal to the trust assets, up to £325k); (b) interest rate (0%, interest-free is acceptable and reduces complications); (c) repayment: 'on demand or on the death of the borrower, whichever is earlier'; (d) signatures of all parties. (2) TRUST BANK ACCOUNT: open a separate bank account in the trust's name. The NRB trust assets (£325k) are paid into this account. The loan is then paid out to the surviving spouse, clearly documented as a loan. Do NOT transfer the assets directly to the survivor without a formal trust account intermediation. (3) THE SURVIVING SPOUSE AS TRUSTEE: the surviving spouse can be a trustee of the NRB trust (as well as the borrower under the loan). This is standard, the Trustee Act 2000 allows it. The spouse/trustee must be aware of the conflict of interest and act in the interests of ALL trust beneficiaries (including the children), not just themselves. Consider appointing a co-trustee (adult child; professional trustee) to provide independent oversight. (4) RECORD-KEEPING: keep annual records of the loan balance (principal + any interest). If the survivor repays part of the loan: record the repayment in the trust accounts. On the survivor's death: the outstanding loan balance is the deductible liability in the estate. (5) WHEN TO NOT USE A NRB TRUST: where the couple's combined estate is entirely within the combined NRB + TNRB + RNRB + TRNRB thresholds (£1m for a couple with children), a NRB trust adds complexity without IHT benefit. Simple mirror wills + TNRB claim on the second death is simpler and equally effective. (6) POST-2013 NRB TRUST CREATION: if a NRB trust was created before Finance Act 2013 and the loan back uses have changed (e.g., survivor recently invested in AIM shares), review the s162A position urgently.

Nil-rate band will trust IHT UK 2026. IHTA 1984, s162: 'In determining the value of a person's estate immediately before his death liabilities of the estate shall be taken into account.' A legally enforceable debt (the loan from the NRB trust to the surviving spouse) is deductible from the estate. s162(4) IHTA: the liability must be incurred for full consideration in money or money's worth, unless it is imposed by law, enforceable by contract, or incurred in connection with a trade or business. An NRB trust loan to a surviving spouse, imposed by the terms of the trust deed and evidenced by a written loan agreement, is a valid liability within s162. s162A IHTA 1984 (inserted by Finance Act 2013, s176): 'A liability to the extent that it is attributable to financing the acquisition, maintenance or enhancement of excluded property or property for which there is an exemption from tax or is otherwise the product of avoidance arrangements shall not be deductible under s162.' AIM shares and BPR-qualifying assets are NOT excluded property (excluded property = foreign situs assets of a non-domiciliary), BUT are 'property for which there is an exemption from tax' (BPR exemption). If the loan is used to acquire BPR-qualifying assets: the deduction is denied under s162A(1)(b). TNRB (Transferable Nil-Rate Band): IHTA 1984, s8A (inserted by Finance Act 2008). The unused proportion of the first deceased spouse's NRB transfers to the surviving spouse's estate. Where the first spouse's estate is fully spouse-exempt (nothing taxable): 100% of the first NRB transfers, giving the survivor an effective NRB of £650k (2026-27). RNRB: s8H IHTA (inserted by Finance Act 2016). Qualifying trusts for RNRB: s8H(2)(c) lists s71A bereaved minors trust, s71D age 18-25 trust, and s89 disabled person's trust as qualifying trusts. A general discretionary trust (NRB trust) is NOT listed, it does not qualify for RNRB. HMRC guidance on NRB will trusts: IHTM26111 (NRB discretionary trusts), IHTM28382 (loans from will trusts, HMRC's acceptance that genuine loan-back arrangements create valid deductible liabilities). 10-year periodic charge on NRB trust: s64 IHTA, effective rate = 30% × aggregate value at periodic charge date × effective rate above NRB at that date (s66 IHTA formula). For a trust with assets £325k (= NRB of £325k): effective rate = 30% × (IHT on a hypothetical £325k transfer: 40% × (£325k − £325k) = 40% × £0 = £0) / £325k = 0%. No periodic charge if trust value does not exceed NRB at 10-year date.

Frequently Asked Questions

What is a nil-rate band discretionary will trust and why was it used?

A nil-rate band (NRB) discretionary will trust is a trust created by the first spouse's will that settles assets up to the nil-rate band (£325k in 2026-27) into a discretionary trust on the first spouse's death, rather than passing them to the surviving spouse (which would be spouse-exempt). This used the first spouse's NRB immediately on their death. Before the transferable nil-rate band (TNRB, introduced by Finance Act 2008), this was an essential IHT planning tool, without it, the first spouse's NRB was wasted (passed spouse-exempt to the survivor, absorbed into the larger combined estate). After TNRB, the NRB trust is less necessary for pure IHT saving (the TNRB automatically transfers the unused NRB to the survivor's estate). Today, NRB trusts are used primarily for non-IHT reasons: protecting assets for children from a first marriage (re-marriage risk), care home fees protection, and creditor protection.

What is the loan back arrangement in a NRB will trust?

The loan back is a mechanism where the trustees of the NRB will trust (after the first spouse's death) lend the trust assets (£325k) back to the surviving spouse under a formal loan agreement. The surviving spouse has access to and use of the full trust assets (as if they owned them) while the trust loan remains an outstanding liability (a debt) against their estate. On the surviving spouse's death: the £325k loan is a deductible liability under s162 IHTA 1984, reducing the taxable estate by £325k (saving up to £130k IHT at 40%). The loan must be a genuine documented commercial loan, not a sham. The loan funds must NOT be used to acquire assets that are IHT-exempt (e.g., BPR-qualifying AIM shares), or the deduction will be denied under s162A IHTA (the artificial debt rule introduced by Finance Act 2013).

Does a NRB discretionary will trust affect the Residence Nil-Rate Band?

Yes, a NRB discretionary will trust (a general discretionary trust) does NOT qualify for the Residence Nil-Rate Band (RNRB) on the first spouse's death. The RNRB requires the qualifying residential interest (the family home) to be 'closely inherited' by a direct descendant or left to a qualifying trust (a bereaved minor's trust, age 18-25 trust, or disabled person's trust). A general NRB discretionary trust is not a qualifying trust for RNRB. If the family home is included in the NRB legacy, the RNRB is lost on the first death, costing up to £70k IHT (40% × £175k RNRB). Best practice: fund the NRB trust with cash and investments (not the family home); leave the home to the surviving spouse; claim the RNRB and TRNRB on the second death.

Is the NRB will trust still useful after the transferable nil-rate band?

The transferable nil-rate band (TNRB, Finance Act 2008) allows any unused proportion of the first spouse's NRB to transfer to the surviving spouse's estate. For most couples, leaving everything to the survivor (spouse-exempt) + claiming the TNRB on the second death achieves the same IHT result as a NRB will trust, without the complexity. However, the NRB will trust remains useful for: (1) re-marriage protection, ring-fencing £325k for children of the first marriage immediately; (2) care home fees protection, assets in the NRB trust are not in the survivor's personal estate for means-testing; (3) large estates (above £1m combined) where the NRB trust loan back can meaningfully reduce the survivor's taxable estate. Existing NRB trusts (created before TNRB was introduced in 2008) should be reviewed, they may no longer be the most efficient structure.

What are the periodic charges on a NRB will trust?

A NRB discretionary will trust is a relevant property trust, subject to 10-year periodic charges under s64 IHTA 1984. The periodic charge is calculated at approximately 6% of the trust value above the nil-rate band at the 10-year anniversary. For a typical NRB trust holding around £325k: if the trust has grown to (say) £350k at year 10 and the NRB is £325k: charge = 6% × (£350k − £325k) = 6% × £25k = £1,500. Modest in practice. If the loan back has been made and the trust's main asset is a loan receivable (repayable on the survivor's death), the trust value = the loan balance (~£325k). Periodic charges on a loan balance of £325k at NRB of £325k: charge = 0% (trust value within NRB). Periodic charges are rarely significant for NRB will trusts.

Does Your Will Still Have a NRB Discretionary Trust? It May Need Reviewing

Many wills written before 2008 contain NRB discretionary trust clauses that may now be unnecessary or counterproductive. A will review ensures your estate plan reflects the transferable nil-rate band, RNRB, and your current family and financial circumstances.

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