Two-Year Discretionary Trust and IHT UK 2026: s144 IHTA Reading Back, NRB Trust in Wills, Spouse Exemption on Appointment, RNRB Risk, and When the Window Closes
A discretionary trust created by a will gives trustees two years to appoint assets — and under s144 IHTA 1984 those appointments read back as if made by the will itself. Appointed to the surviving spouse: spouse exemption applies. Miss the 2-year window: the benefit is gone and exit charges apply instead.
s144 IHTA: Will Trust Appointments Within 2 Years Read Back as If Made by the Will — Use the Window or Lose It
Section 144 IHTA 1984: where an appointment is made from a discretionary trust created by a will within 2 years of death, the appointment is treated as having been made by the will itself. Spouse exemption applies if appointed to spouse. Charitable exemption if appointed to charity. RNRB available if home appointed to children. The 2-year deadline is strict and cannot be extended. Missed window: distributions are exit charges (s65 IHTA) — not reading-back events. NRB discretionary trusts in wills: the classic structure for post-death IHT flexibility. RNRB risk: do not put the family home in the NRB trust unless you plan to appoint it to children within 2yr.
| Aspect | Rule / Principle | Example / Scenario | Planning Guidance |
|---|---|---|---|
| How s144 IHTA reading back works | THE s144 IHTA MECHANISM (s144 IHTA 1984): where property comprised in a person's estate immediately before death BECOMES SETTLED PROPERTY (on discretionary trusts created by the will), and within 2 years of the death an event occurs as a result of which the property ceases to be relevant property (i.e., it is appointed out of the discretionary trust to a beneficiary or specific trust), the event is TREATED as if it occurred immediately after the death and as if it were effected by the will. WHAT 'READING BACK' MEANS: the appointment is treated as if the deceased's will had left the property directly to the appointed beneficiary. The discretionary trust period is 'read back out' — as if the trust had not intervened. This allows the appointment to attract IHT reliefs that would apply to direct will gifts: SPOUSE EXEMPTION (s18 IHTA): if appointed to the surviving spouse (or civil partner): the appointment reads back as a direct legacy to the spouse — 100% exempt from IHT. The estate effectively retains the NRB (or uses it elsewhere) and the spousal exemption is retrospectively applied to the appointed assets. CHARITABLE EXEMPTION (s23 IHTA): if appointed to a qualifying charity — exempt from IHT. IPDI TREATMENT: if the trustees appoint assets to a life interest trust for the surviving spouse within 2yr: the trust is treated as an IPDI (Immediate Post-Death Interest) under s49A IHTA — the assets form part of the spouse's estate for IHT (not subject to the relevant property regime in the hands of the trust). THE 2-YEAR WINDOW: the appointment must be made within 2 years of the date of death. Not 2 years from probate — 2 years from death. The deadline is strict: an appointment on day 730 (if within 2yr) qualifies; day 731 does not. FORMAL REQUIREMENTS: the appointment must be validly executed — the trustees must exercise their power of appointment under the trust deed in writing. The appointment can be an advance or appointment under the trust deed powers. Legal advice is essential — an informal distribution without formal documentation does not constitute an s144 appointment. | s144 WORKED EXAMPLE: a married couple, Fred and Wilma. Fred dies first. Fred's estate: £700k (above the NRB). Fred's will: entire estate on discretionary trust (trustees: Wilma and two adult children). Beneficiaries: Wilma, children, grandchildren. IHT AT FRED'S DEATH: the estate (£700k) is on discretionary trust — relevant property. IHT on the trust: 40% × (£700k − £325k NRB) = 40% × £375k = £150k IHT immediately due. BUT WAIT: before paying the IHT, the trustees make an appointment WITHIN 2yr: £375k is appointed to Wilma outright (i.e., the excess above the NRB is appointed to the surviving spouse). s144 READING BACK: the appointment to Wilma reads back as a direct legacy from Fred's will. Spouse exemption (s18 IHTA) applies to the appointed £375k. IHT revised: Fred's NRB (£325k) covers £325k of the estate (no IHT). The appointed £375k: spouse exemption (now treated as a direct legacy to Wilma). IHT = £0. RESULT: zero IHT on Fred's death. Wilma inherits £375k; the remaining £325k stays on discretionary trust (to preserve the NRB trust planning for Wilma's death). TNRB: Fred's NRB was fully used (£325k) — no transferable NRB to Wilma. But the NRB discretionary trust allows the NRB to be used efficiently. | THE CLASSIC NRB DISCRETIONARY TRUST IN WILLS: the most common use of a two-year discretionary trust is the NRB discretionary trust — a discretionary trust for the amount of the available NRB (£325k in 2026). The NRB amount goes into the discretionary trust; the residue (above the NRB) goes to the spouse (either directly or via IPDI — also spouse-exempt). WHY: a will that leaves everything to the surviving spouse is 100% IHT-exempt (spousal exemption) — but wastes the first spouse's NRB. The NRB is 'transferred' to the surviving spouse (TNRB — s8A IHTA) on the second death — but only if the NRB is not used on the first death. The NRB discretionary trust USES the first spouse's NRB productively: (a) the NRB amount is on trust (flexible; trustees can benefit the surviving spouse and children); (b) the NRB is NOT transferred to the surviving spouse (it has been used); (c) but £325k is held in a separate trust — potentially outside the surviving spouse's estate for IHT on the second death. POST-FA 2026: the NRB discretionary trust strategy remains valid and useful. The RNRB (s8D IHTA) is a separate relief — the NRB discretionary trust does NOT affect the RNRB where a qualifying property passes to direct descendants. POTENTIAL ISSUE: if the NRB discretionary trust prevents the RNRB qualifying home from passing directly to direct descendants — the RNRB may be lost. See the RNRB section below. |
| Transferable nil-rate band and two-year trusts | TRANSFERABLE NRB (TNRB — s8A IHTA 1984) INTERACTION: on the death of the surviving spouse, any unused NRB from the first spouse's estate is transferred to the surviving spouse's estate. The TNRB rules provide that unused NRB = the proportion of the NRB not used on the first death. IF A NRB DISCRETIONARY TRUST IS CREATED: the NRB is USED on the first death (the NRB amount is placed into the discretionary trust). Therefore: no TNRB transfers to the surviving spouse — the first spouse's NRB is fully used by the trust. IF s144 APPOINTMENT IS MADE TO THE SURVIVING SPOUSE WITHIN 2yr: the appointment reads back as a direct legacy to the spouse. The NRB trust is wound up — the NRB that was in the trust is treated as having been given directly to the spouse. The NRB is UNUSED (because the appointment to the surviving spouse = spouse exemption; no IHT on the NRB = the NRB was not 'used' for IHT). RESULT: after the s144 appointment, the full NRB IS available for transfer as TNRB. A trustees' appointment of all trust assets to the surviving spouse within 2yr restores the full TNRB. THE TWO-YEAR WINDOW STRATEGY: the trustees can WAIT to see whether the NRB trust is needed: (a) if the surviving spouse has significant assets of their own: keep the NRB in trust (available for children/grandchildren on the surviving spouse's death — reduces the taxable estate). (b) if the surviving spouse needs more assets: appoint out of the trust to the spouse (s144 reads back; spouse exemption; TNRB restored). The 2yr window provides maximum flexibility. | TNRB EXAMPLE — USING THE 2yr WINDOW: Fred dies with £700k. Will: NRB to discretionary trust; residue to Wilma. NRB trust funded with £325k. OPTION A (keep NRB in trust, use TNRB fully): the trustees do NOT appoint out of the trust. No TNRB on Fred's NRB (it was used). Wilma survives Fred by 10yr. Wilma dies with £900k + inherits the trust assets of £325k (but the trust is separate — not in her estate). On Wilma's death: her estate £900k; TNRB = £0 (Fred's NRB was used in the trust). NRB = £325k. IHT: 40% × (£900k − £325k) = 40% × £575k = £230k. The £325k in the NRB trust: taxed within the trust at its anniversary dates (10yr periodic charge). OPTION B (appoint to Wilma within 2yr; s144 reads back; TNRB restored): trustees appoint £325k from trust to Wilma within 2yr. Reading back: Fred's NRB is treated as if it passed to Wilma (spouse exemption; NRB unused). TNRB = 100% transferred. Wilma dies with £900k + £325k (appointed from trust) = £1.225m. TNRB: £325k. Total NRB available: £650k. IHT: 40% × (£1.225m − £650k) = 40% × £575k = £230k. SAME TAX OUTCOME — but option B is simpler (no ongoing NRB trust administration; no 10yr periodic charges). LESSON: the NRB discretionary trust provides flexibility — use the 2yr window to choose the most beneficial outcome after seeing the full picture. | RNRB INTERACTION — THE CRITICAL RISK: the Residence Nil-Rate Band (RNRB — s8D IHTA 1984) is an additional NRB of up to £175k per person (2026-27) where a qualifying residence passes to a 'direct descendant'. THE RISK WITH NRB DISCRETIONARY TRUSTS: if the deceased's will puts the FAMILY HOME into the discretionary trust (not directly to children or other direct descendants): the RNRB may NOT be available. The RNRB requires the home to 'closely inherit' by passing directly to direct descendants or into specified trusts for direct descendants (s8H IHTA — bereaved minor trusts; s71A IHTA; absolute gifts to direct descendants; IPDI for a surviving spouse). A discretionary trust does NOT qualify as a 'closely inherited' route unless the appointment within 2yr goes to a direct descendant. HOW TO PRESERVE THE RNRB WITH A DISCRETIONARY TRUST: structure the will so that: (a) the FAMILY HOME is left directly to the children (or via IPDI for the surviving spouse) — not into the discretionary trust; (b) only CASH or other assets (not the home) go into the NRB discretionary trust. Alternatively: use the RNRB downsizing addition (s8FA IHTA) if the home has been sold or downsized. PROFESSIONAL WILL DRAFTING IS ESSENTIAL: poorly drafted discretionary trusts in wills that include the family home can inadvertently lose the RNRB (worth up to £350k for a couple) — a potentially enormous IHT cost. Always take specialist advice when a discretionary trust will is used alongside a family home. |
| When s144 goes wrong — common pitfalls | PITFALL 1 — MISSING THE 2-YEAR DEADLINE: s144 reads back ONLY if the appointment is made within 2 years of death. Day 731 = too late. Trustees who delay (waiting for better investment conditions; family disagreements; difficulty tracing beneficiaries) risk missing the window. The 2yr deadline is not extendable by HMRC and cannot be waived. Late appointments: the assets leave the trust on the appointment date — this is an exit charge under the relevant property regime (s65 IHTA), not a reading-back appointment. PITFALL 2 — RNRB LOST WHERE HOME IN TRUST: if the family home is placed in the NRB discretionary trust and the trustees appoint it to children more than 2yr after death: (a) no s144 reading back (2yr window closed); (b) exit charge on the trust (s65 IHTA); (c) RNRB was NOT claimed on the death (no direct passing to descendants at death). The RNRB is lost permanently. PITFALL 3 — INCOMPLETE APPOINTMENT DOCUMENTATION: the appointment must be formally executed. An informal letter saying 'I think we should give this to Tom' does not constitute a valid appointment. The trust deed must provide a power of appointment; the power must be properly exercised in writing by all trustees; any land requires a formal deed. Informal distributions are taxable at the trust's exit charge rate — they do NOT read back under s144. PITFALL 4 — ACCUMULATION AND MAINTENANCE PITFALL (for older trusts): pre-Finance Act 2006 accumulation and maintenance trusts had s144 equivalents — but FA 2006 changed the relevant property regime. Post-FA 2006 s144 requires careful attention to when the trust was created and what type of trust it is. | S144 PITFALL — REAL-WORLD SCENARIO: Margaret dies in January 2024 (estate: £800k). Will: entire estate to NRB discretionary trust; trustees: her son John and daughter Sarah. Beneficiaries: John, Sarah, grandchildren. IHT: 40% × (£800k − £325k) = £190k. The executors pay the IHT from the estate. THE MISTAKE: no appointment is made from the trust. John and Sarah are busy and don't take advice. By January 2026: 2 years have passed. The entire £800k has been in the discretionary trust for 2 years. RESULT: (a) s144 reading back no longer available; (b) the trust is a relevant property trust — subject to 10-year periodic charges from January 2034; (c) no spouse exemption possible (Margaret was widowed — no spouse); (d) the RNRB may have been lost (if Margaret's home was in the estate and passed into the trust, not directly to John and Sarah). THE CORRECT APPROACH: the trustees should have taken IHT advice within the first 6 months. Even if the full estate was appropriately left to trust: the trustees should have considered: whether s144 appointments were beneficial; what assets to leave in trust; whether the RNRB was maximised. LESSON: NRB discretionary trusts require ACTIVE TRUSTEE MANAGEMENT within the 2yr window. Failure to act can mean paying IHT that could have been avoided. | PRACTICAL STEPS FOR TRUSTEES OF A WILL DISCRETIONARY TRUST: (1) APPOINT PROFESSIONAL ADVISERS WITHIN 3 MONTHS OF DEATH: instruct a specialist tax solicitor or accountant with IHT expertise. The 2yr window is precious. (2) REVIEW THE ESTATE AND BENEFICIARIES' POSITIONS: what are the surviving spouse's own assets? Do they need more cash? What is the IHT position on the second death? (3) CONSIDER WHETHER s144 APPOINTMENTS ARE BENEFICIAL: if the surviving spouse has a large estate: keep assets in trust (reduces the spouse's estate for IHT). If the surviving spouse needs the assets: appoint to spouse within 2yr (s144 reads back; spouse exemption restored; TNRB preserved). (4) CONSIDER THE RNRB: has the family home been left to the trust? If so: appoint the home directly to children within 2yr (s144 reads back; treated as direct will gift to children; RNRB available). APPOINTMENT OF HOME TO CHILDREN within 2yr of death = RNRB qualifying. (5) DEED OF APPOINTMENT: all appointments must be by formal written deed executed by all trustees. For land: the deed must comply with s2 Law of Property (Miscellaneous Provisions) Act 1989 (signed deed; witnessed). For personal property: written appointment signed by all trustees. SDLT: an appointment of land from a will trust may trigger SDLT for the appointee if they pay consideration. A gift appointment (no consideration): no SDLT. HMRC NOTIFICATION: report the appointment to HMRC on IHT100 form within 6 months of the appointment date (or within 12 months of the death, whichever is later). |
| s144 vs deed of variation — choosing the right route | TWO ROUTES TO RE-ROUTE ASSETS AFTER DEATH: (1) s144 IHTA APPOINTMENT (from a will discretionary trust); (2) DEED OF VARIATION (s142 IHTA 1984). BOTH allow post-death rearrangement of an estate with IHT reading-back effect — but they differ in structure and use. s144 IHTA: used WHERE there is a discretionary trust already created by the will. The trustees exercise their powers to appoint assets to beneficiaries. Reads back if within 2yr. No consideration required (gratuitous). No need for beneficiaries' consent (the trustees can appoint unilaterally under their trust powers). s142 IHTA DEED OF VARIATION: used WHERE assets were left directly to beneficiaries by the will (no trust). The beneficiary who inherited the asset VARIES the destination — directs that the asset goes to someone else. Reads back if within 2yr (s142 IHTA; election required for CGT under s62(6) TCGA). Requires the BENEFICIARY'S written consent and signature (not the trustees' — there is no trustee). KEY DIFFERENCE: in an s144 trust: the trustees have discretion — they can appoint to whoever they choose (from the beneficiary class). The deceased beneficiaries have no say. In an s142 deed of variation: the original beneficiary (the person who actually inherited) must agree to redirect their inheritance. The beneficiary is voluntarily giving up assets they have already inherited. BOTH ARE WITHIN 2yr: the deadline for both s144 and s142 is 2 years from the date of death. WHICH TO USE: s144: where a discretionary trust was created by the will and the trustees want to use that flexibility. s142: where no discretionary trust exists and a direct beneficiary wishes to redirect their inheritance (e.g., to save IHT; to benefit grandchildren; to make a charitable gift). | s144 vs s142 — SCENARIO COMPARISON: SCENARIO A (s144): Harold dies. Will: entire estate to discretionary trust (beneficiaries: wife Joan; sons Peter and Paul). Peter and Paul are the trustees. Within 2yr, Peter and Paul appoint the estate to Joan (using their trustee powers). s144: reads back as a direct legacy to Joan. Spouse exemption: no IHT. JOAN DID NOT NEED TO CONSENT — the trustees appointed to her. SCENARIO B (s142): Harold dies. Will: entire estate DIRECTLY to sons Peter and Paul (no trust). No discretionary trust. IHT is charged. Peter and Paul want to redirect a share to Joan (to save IHT). They execute a deed of variation within 2yr: varying the will to leave, say, 50% to Joan instead. s142 reads back: the variation is treated as if Harold's will had left 50% to Joan directly. Spouse exemption on the Joan share: IHT saving. PETER AND PAUL MUST SIGN THE DEED (as the original beneficiaries, redirecting their inheritance). Joan does not need to sign (she is the new beneficiary, not the redirector). LESSON: s144 = TRUSTEE power; used from a trust created by the will. s142 = BENEFICIARY consent; used to vary a direct will gift. | PLANNING AHEAD — DRAFTING THE WILL WITH DISCRETIONARY TRUST FLEXIBILITY: where the testator wants maximum flexibility post-death: draft the will with a discretionary trust for some or all of the estate. The trustees can then use s144 within 2yr to optimise the IHT position based on: (a) the size of the surviving spouse's own estate; (b) the IHT threshold in force at death (the NRB may have changed); (c) the RNRB availability (if the home is in the estate); (d) the beneficiaries' own financial needs and tax positions. BALANCING FLEXIBILITY WITH CERTAINTY: a fully discretionary will (everything on trust) gives maximum flexibility but: (a) the surviving spouse has NO guaranteed right to income (only the trustees' discretion); (b) the RNRB may be at risk if the home is in the trust; (c) trustees' management costs and 10yr periodic charge exposure for assets left in trust beyond 2yr. A balanced approach: (a) FAMILY HOME: directly to children (or IPDI for spouse — qualifying for RNRB); (b) INVESTMENT ASSETS UP TO NRB: discretionary trust (s144 flexibility within 2yr); (c) RESIDUE ABOVE NRB: directly to surviving spouse (spouse exemption). This structure: protects the RNRB; preserves s144 flexibility for the NRB amount; avoids the entire estate being on discretionary trust. LETTER OF WISHES: accompany the will with a non-binding letter of wishes explaining the intended operation of the discretionary trust — particularly guiding trustees on when to use s144 appointments. The letter is not legally binding but gives the trustees context. |
Two-year discretionary trust and IHT UK 2026. s144 IHTA 1984 (as amended): 'Where property comprised in a person's estate immediately before his death becomes settled property by virtue of his will, and within the period of two years after his death an event occurs as a result of which the settled property ceases to be relevant property, this Act shall have effect as if the will had provided that on the testator's death the property should be held as it is held after the event.' THE EFFECT: the trust (and the period during which it was relevant property) is completely disregarded. The estate is taxed as if the deceased's will had provided for the property to be held in the manner in which it is actually held after the appointment. Key elements: (a) 'settled property' — the trust must be a settlement as defined by s43 IHTA 1984; (b) 'relevant property' — the trust must be a relevant property trust (discretionary trust) within Chapter III IHTA 1984 (ss58-85); (c) 'within two years after death' — calculated from the date of death (not probate; not the date the estate was administered); (d) 'event occurs as a result of which the property ceases to be relevant property' — includes: distribution to a beneficiary outright; appointment to a bereaved minor trust (s71A); appointment to an IPDI for the surviving spouse; appointment to a disabled person's trust (s89); conversion to a fixed interest trust. Note: the event is treated as if it occurred immediately after death — so the property is treated as NEVER having been in the relevant property regime. No relevant property charges arise during the 2yr period. s144(2) IHTA: does NOT apply to a reversionary interest (it must be present-day relevant property). s144(3) IHTA: the event must not be an exempt transfer otherwise than by virtue of s144 — i.e., the reading-back is needed to create the exemption, not just to confirm one that already exists. s144 and the RNRB: HMRC confirmed (HMRC Inheritance Tax Manual IHTM46004) that an appointment of the qualifying residence to direct descendants within 2yr of death qualifies for the RNRB under the s144 reading-back mechanism. The 'closely inherited' condition (s8H IHTA) is satisfied because the reading back treats the home as having passed directly to the descendants by the will. s144 and IPDI: an appointment within 2yr creating an IPDI (Immediate Post-Death Interest — s49A IHTA) for the surviving spouse is treated as if the will had created an IPDI for the spouse. The trust assets are then treated as part of the spouse's estate (not the relevant property trust). s144 and bereaved minor trusts: an appointment within 2yr to a bereaved minor trust (s71A IHTA — for minor children of the deceased) reads back — the property is treated as settling an s71A trust under the will — which is a qualifying trust for the RNRB (if the home passes via the s71A trust). s144 vs s142 IHTA (deed of variation): both provide 2yr reading back, but the parties and mechanism differ. s142: applied by a BENEFICIARY redirecting inherited assets (requires beneficiary's signed deed; election for CGT). s144: applied by TRUSTEES exercising trust powers (no beneficiary consent required). s144 and CGT: s144 does NOT automatically apply for CGT purposes. A separate TCGA provision (s62(6)) may be needed for CGT reading back. Seek specialist CGT advice where the appointment involves appreciating assets (equities, property). IHT100 reporting: appointments from relevant property trusts are reportable on form IHT100 (event: 'cessation of relevant property treatment'). File within 6 months of the appointment date. TNRB after s144 appointment to spouse: where all assets are appointed from an NRB trust to the surviving spouse within 2yr, the appointment reads back as a direct spousal gift. The NRB is treated as unused on the first death. The full NRB is transferable to the surviving spouse (TNRB — s8A IHTA). The TNRB must be claimed within 2yr of the surviving spouse's death (form IHT402). Finance Act 2026: the £1m combined BPR/APR cap does not affect s144 reading back or the NRB discretionary trust mechanism. The NRB (£325k) and RNRB (£175k) thresholds remain the same (frozen until April 2030 under Budget 2024 policy).
Frequently Asked Questions
What is a two-year discretionary trust in a will and how does s144 IHTA work?
A two-year discretionary trust in a will is a discretionary trust created by the will, into which assets are paid at death, with the trustees having the power to distribute those assets to beneficiaries within two years of death. Section 144 IHTA 1984 provides that where property leaves a discretionary trust created by a will within two years of the testator's death, the event is treated as if it occurred immediately after death and as if it were effected by the will. This 'reading back' means: (a) an appointment to the surviving spouse within 2yr reads back as a direct will gift — spouse exemption (s18 IHTA) applies; (b) an appointment to a charity reads back — charitable exemption (s23 IHTA) applies; (c) an appointment of the family home to children reads back — the RNRB may be claimed. The two-year window provides trustees with flexibility to see the full estate picture before deciding how to distribute assets.
If I appoint assets from a will discretionary trust to my surviving spouse within 2 years, does spouse exemption apply?
Yes — under s144 IHTA 1984, if the trustees of a will discretionary trust appoint assets to the surviving spouse within two years of the testator's death, the appointment reads back as if the will had left those assets directly to the spouse. The spousal exemption (s18 IHTA) applies — no IHT on the appointed assets. This is a powerful planning tool: the will initially puts everything on discretionary trust (giving the trustees flexibility), and the trustees can then appoint to the spouse within 2yr if needed (activating the spouse exemption retroactively). The appointment is by the trustees — the surviving spouse does not need to have inherited or owned the assets to be appointed them. Legal advice and formal documentation are essential: the appointment must be properly executed.
Does a discretionary trust in a will affect the Residence Nil-Rate Band?
It can — the Residence Nil-Rate Band (RNRB) requires the qualifying residence to pass to a 'direct descendant' by closely inheriting (s8H IHTA). If the family home is placed in the NRB discretionary trust: the home does not pass directly to children at death — the RNRB may not be available. To preserve the RNRB: either (a) leave the home directly to the children (not into the trust); (b) leave the home via IPDI (Immediate Post-Death Interest) for the surviving spouse (also qualifies for RNRB); or (c) within 2yr of death, the trustees use s144 to appoint the home directly to the children (reading back as a direct will gift to descendants). If the trustees appoint the home to the children within 2yr: the reading-back means the home is treated as having passed directly to the children — RNRB applies. Miss the 2yr window: RNRB is lost. Specialist will drafting advice is essential where the estate includes a family home and NRB discretionary trust.
What is the difference between s144 IHTA and s142 deed of variation?
Both s144 IHTA and s142 IHTA allow post-death rearrangement of an estate with a 2-year reading-back period. The key difference is who acts and from where. s144: the TRUSTEES of a will discretionary trust use their powers to appoint assets to beneficiaries. No beneficiary consent is needed — the trustees act on their own authority. Used where the will created a discretionary trust. s142: a BENEFICIARY who has already inherited directly from the will agrees to redirect their inheritance (by deed of variation). The original beneficiary must sign the deed. Used where assets were left directly to specific beneficiaries (no trust). Both read back as if the original will made the disposition — attracting the same IHT reliefs. s142 additionally requires a CGT election (s62(6) TCGA) if the variation affects CGT positions. Both must be within 2 years of the date of death.
What happens if trustees miss the 2-year window for s144 appointments?
If trustees fail to make appointments from the will discretionary trust within 2 years of death: the s144 reading-back is no longer available. Any subsequent appointments are treated as distributions from an ongoing relevant property trust — subject to the normal exit charge under s65 IHTA (a proportion of the 6% maximum rate, scaled by time elapsed since the last 10-year anniversary). The exit charge will be lower than the IHT that would have applied without any trust, but the full IHT-saving benefits of s144 (particularly spousal exemption reading back) are lost. The 2-year deadline is strict and cannot be extended. Trustees should take IHT advice within the first 3-6 months of the testator's death to ensure the s144 window is not wasted.
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