Will Trusts and Inheritance Tax UK 2026: Types, IHT Treatment, s144 IHTA Appointments, and When to Use One
Will trusts range from IPDI trusts (spouse treated as owning the assets; spousal exemption on first death; RNRB preserved) to discretionary trusts (maximum flexibility; s144 IHTA 2-year post-death restructuring). Old NRB DTs in pre-2007 wills are often now an IHT trap.
| Trust Type | Creation | IHT on First Death | Ongoing IHT Position | Benefits vs Risks | Notes |
|---|---|---|---|---|---|
| Immediate Post-Death Interest (IPDI) trust (s49A IHTA 1984) | Created by will; life interest comes into effect immediately on death. Typically: spouse/civil partner has the right to income or use of property for their lifetime; children receive the capital on the life tenant's death. | Assets pass into the IPDI trust. If the life tenant is the deceased's spouse/CP: s18 IHTA spousal exemption applies — assets pass IHT-free (unlimited). Spousal exemption is NOT available if the surviving spouse is not UK domiciled (limited to £325k — though s267ZA IHTA election available). | Assets in the IPDI are treated as OWNED by the life tenant (s49(1) IHTA). On the life tenant's death: the full value of the IPDI assets is included in their estate for IHT. The RNRB can apply to the residential property in an IPDI if: (1) it passes to lineal descendants on the life tenant's death; (2) the life tenant occupied the property (s8H IHTA — qualifying residential interest includes IPDI property). | BENEFITS: s18 spousal exemption; RNRB available via IPDI; simple for surviving spouse to understand; capital protected for children. RISKS: full IHT on the life tenant's death (assets may have grown significantly); life tenant included for IHT (so pension reform April 2027 does NOT affect IPDI — pension NOT in IPDI); if life tenant remarries: new spouse may have claim. | Old wills often use IPDI for the family home — ensuring the surviving spouse can live in the property for life while protecting children's inheritance. Modern wills may prefer a discretionary trust for flexibility. |
| Discretionary trust (DT) — relevant property regime (ss58-69 IHTA 1984) | Created by will; no beneficiary has a fixed interest. Trustees (usually the executor + family members) have discretion over who benefits and when. | Assets passing into a DT are NOT covered by the s18 spousal exemption (because no beneficiary has a fixed interest — the spouse is just a potential beneficiary among others). They are subject to IHT on first death. Exception: NRB discretionary trust — if assets up to NRB only pass into the DT, these are within the NRB and no IHT on first death. For assets above NRB in a DT on first death: IHT is due. | Assets in a DT are NOT in any beneficiary's estate. Periodic (10yr) charge (s64 IHTA): broadly 6% × trust value above NRB (£325k) at each 10yr anniversary. Exit charge (s65 IHTA): pro-rated periodic charge on capital leaving the trust (between 0% and 6%). These charges are modest but must be planned for. | BENEFITS: maximum trustee flexibility; assets can be managed for changing circumstances; protect assets from beneficiary's creditors, divorce, or bankruptcy; not in any beneficiary's estate (doesn't inflate beneficiary's IHT estate); can hold BPR-qualifying assets (BPR within the trust). RISKS: periodic and exit charges (modest but real); Trust Registration Service (TRS) registration required; annual tax returns (SA900) required; more complex administration and cost. | Most commonly used for: (1) flexibility about which children or grandchildren benefit; (2) protecting assets where a beneficiary is vulnerable, financially reckless, or has creditor issues; (3) post-death IHT flexibility via s144 IHTA appointments within 2yr of death. |
| NRB discretionary trust in old wills (pre-2007 will planning) | Older wills often include a 'NRB gift' — assets up to the NRB (then £300k; now £325k) pass into a discretionary trust on first death; remainder to spouse. Designed to ensure each spouse's NRB was not wasted (before transferable NRB existed). | Assets up to NRB pass into the DT: within the NRB so no IHT. Remainder: s18 spousal exemption. | IHT trap: the NRB DT used part of the first spouse's NRB on first death. On second death: tNRB (IHT402) available only for the UNUSED portion of the first spouse's NRB. If all NRB was used in the DT: tNRB = £0. If all estate went to spouse (no DT): tNRB = £325k (100%). | RISKS (now): the NRB DT was designed before tNRB existed. With tNRB (2007+): the NRB DT is unnecessary for IHT purposes — and may actually COST IHT if it reduces the tNRB available at the second death. OLD WILLS with NRB DTs SHOULD BE REVIEWED AND UPDATED. A solicitor can advise whether the NRB DT clause should be removed from the will. If the first spouse has already died with an NRB DT in place: seek advice on whether the DT assets can be appointed out within 2yr (s144 IHTA) to restore maximum tNRB. | This is one of the most common 'will traps' for couples with older wills. A will drafted before 2007 may have an NRB discretionary trust that was optimal at drafting but is now IHT-counterproductive. |
| Bereaved Minors Trust (BMT) (s71A IHTA 1984) | Created by will specifically for children under 18 who lose a parent or step-parent. Conditions: (1) the deceased was the child's parent or step-parent; (2) the trust capital and income passes to the bereaved minor absolutely on reaching 18; (3) the minor has the right to income in the meantime; (4) no other person is entitled to the income or capital while the minor is under 18. | Assets pass to the BMT. IHT applies on death (or potentially s18 spousal exemption if via the other parent). | SPECIAL IHT STATUS: BMT assets are EXEMPT from periodic (10yr) charges and exit charges while the minor is under 18. This is a major IHT advantage over a standard discretionary trust. On reaching 18: assets pass outright to the child with no exit charge. | BENEFITS: no periodic or exit charges; appropriate for straight-forward gifts to children who will receive outright at 18; widely used in parental wills. RISKS: assets must pass outright at 18 — there is no power to defer beyond 18 (unlike s71D trusts); only for parents/step-parents (not grandparents). Trust Registration Service: registration still required. | The most commonly used trust for parental wills with minor children. It is IHT-efficient, straightforward, and allows the child to inherit at 18. |
| Section 71D (18-to-25) trust (s71D IHTA 1984) | Created by will for children between 18 and 25. Allows deferral of inheritance to a later age (up to 25) while maintaining relatively low IHT charges. Must be created by will of a parent or step-parent. | Assets pass to the 71D trust. Standard IHT on death. | MODERATE IHT STATUS: no periodic (10yr) charges during the trust period (while beneficiary is under 25). Exit charges apply when capital leaves the trust (between age 18 and 25) — but capped at 4.2% (30% of 6% maximum periodic charge × (years as relevant property since 18)). Lower than standard discretionary trust exit charges. | BENEFITS: defers inheritance to a more mature age (25 rather than 18) while moderate exit charges; useful for parents who want their children to receive inheritance at a more financially responsible age. RISKS: exit charges between 18 and 25 (modest, up to ~4.2%); only for parents/step-parents; Trust Registration Service required. | Often paired with a BMT provision: the will gives a BMT for under-18s and a s71D trust for ages 18-25, ensuring the child does not receive a large inheritance at the potentially immature age of 18. |
| Disabled person's trust (s89 IHTA 1984) | Created by will for a disabled beneficiary who meets the statutory definition. Broadly: the beneficiary must be unable to manage their own financial affairs due to mental disorder (Mental Health Act 1983) or receiving a qualifying disability benefit. | Assets pass to the s89 trust. IHT on death. Potentially s18 spousal exemption if spouse/CP is the disabled beneficiary. | VERY FAVOURABLE IHT STATUS: the disabled beneficiary is treated as owning the trust assets for IHT purposes (s89(2) IHTA — similar to IPDI). No periodic or exit charges. On the disabled beneficiary's death: trust assets included in THEIR estate for IHT (with their own NRB available). | BENEFITS: no periodic/exit charges; assets treated as in the disabled beneficiary's estate (they have their own NRB — potentially helping); Government guidance aims to protect disabled beneficiaries. RISKS: restricted use (only for qualifying disabled beneficiaries); complex qualifying conditions; specialist legal drafting required. | Crucial for families with a disabled child who will require long-term financial support. The trust protects means-tested benefit eligibility while maintaining IHT efficiency. Specialist advice essential. |
Will trusts IHT UK 2026. IPDI trust: s49A IHTA 1984 — life tenant treated as owning assets (s49(1) IHTA); s18 IHTA spousal exemption on first death (unlimited — UK dom surviving spouse); qualifying residential interest (QRI) for RNRB (s8H IHTA) — RNRB applies to IPDI residential property if passes to lineal descendants on life tenant's death; QRI net = property value minus outstanding mortgage (s8H(4) IHTA). Discretionary trust (DT): relevant property regime ss58-69 IHTA; 10yr periodic charge (s64 IHTA — broadly 6% × trust above NRB); exit charge (s65 IHTA — pro-rated periodic rate × fraction of 10yr period); maximum 6% total IHT in any 10yr period. NRB DT: pre-2007 planning; NOW trap — uses first spouse's NRB → reduces tNRB (s8A IHTA IHT402) for second estate. Bereaved Minors Trust (BMT): s71A IHTA — no periodic/exit charges; assets pass at 18 outright; must be will of parent/step-parent. s71D trust: 18-to-25; exit charges max ~4.2% between 18-25; moderate charges; for parents/step-parents. Disabled person's trust: s89 IHTA — treated as disabled beneficiary's own estate; no periodic/exit charges; qualifying disability definition. s144 IHTA: DT appointment within 2yr of death treated as made by will (backdated for IHT); no s144 IHT charge if appointment within NRB or before first 10yr charge; enables post-death IHT optimisation (tNRB maximisation; 36% charitable rate trigger; BPR optimisation). s142 IHTA: deed of variation by beneficiaries within 2yr — same IHT read-back effect. TRS: Trust Registration Service — all express trusts (including will trusts) must register within 90 days of creation; exceptions: trusts wound up within 2yr; bare trusts; charitable trusts. SA900: annual trust/estate tax return required if trust has income > £100, gains, or ongoing distributions. NRB: £325k (frozen to April 2030). tNRB: s8A IHTA — IHT402 NOT automatic. RNRB: £175k (2026/27). tRNRB: s8G IHTA — IHT436 NOT automatic. RNRB taper: s8E IHTA — zero above £2.35m (single RNRB) / £2.7m (RNRB + tRNRB). Spousal exemption non-UK dom: limited to £325k unless s267ZA IHTA election made (irrevocable). Trust Registration Service: HMRC TRS mandatory registration; 90-day deadline from trust creation. Periodic charge calculation: effective rate × appropriate fraction (time in 10yr period); maximum rate 6% of value above NRB at 10yr anniversary.
Will Trusts and IHT: Complete Guide
Why use a will trust instead of leaving assets outright?
Leaving assets directly to beneficiaries in a will is simplest — but will trusts provide capabilities that outright gifts cannot: (1) Protection: assets in trust are protected from a beneficiary's creditors, bankruptcy, or divorce proceedings. If your child goes through an acrimonious divorce, assets left outright in your will may be considered matrimonial assets. Assets held in a discretionary trust (where the child is merely a potential beneficiary) are protected. (2) Flexibility: a discretionary trust allows the trustees to distribute assets based on future circumstances — tax law changes, beneficiary needs, family events — that cannot be predicted at the time of writing the will. (3) Protecting vulnerable beneficiaries: for a beneficiary with mental health difficulties, addiction, or who cannot manage money: a discretionary trust ensures the trustees manage the assets, distributing income or capital as needed, without the beneficiary being overwhelmed by a large lump sum. (4) IHT planning for the second death: an IPDI trust for a surviving spouse allows the residential property to qualify for the RNRB at the second death — preserving the RNRB by ensuring the property passes from the IPDI to lineal descendants. Without an IPDI (just leaving the property to the spouse outright): the RNRB still applies on the second death if the spouse later leaves the property to children. But with an IPDI: the structure is explicit and legally certain. (5) s144 IHTA flexibility: a discretionary will trust gives trustees the power to appoint assets within 2 years of death — treated as if made by the will — allowing post-death IHT optimisation based on actual estate values and tax position.
The s144 IHTA power — post-death IHT structuring within 2 years
Section 144 IHTA 1984 is one of the most powerful tools for post-death IHT optimisation. The rule: if a discretionary will trust appoints (distributes) assets to beneficiaries within 2 years of the deceased's death — AND the appointment does not attract a tax charge itself (it is within the NRB or within the 10yr charge period) — the appointment is treated as if the deceased had made that distribution in their will directly. In practice: this means the executor/trustees of a discretionary will trust have up to 2 years after the death to RESTRUCTURE how the estate is distributed for IHT purposes. Practical uses: (1) Maximise tNRB: if the first spouse's estate was distributed partly to children (partially using the NRB), the trustees can use s144 to appoint the assets back to the surviving spouse within 2yr — restoring the full tNRB for the second estate; (2) Trigger the 36% charitable rate: appoint ≥10% of the baseline to charity within 2yr to trigger the 36% rate retroactively; (3) Redirect assets to maximise BPR: if certain beneficiaries can benefit from BPR (by receiving BPR-qualifying assets) while others receive non-qualifying assets — the trustees can direct the distribution accordingly; (4) Respond to estate size uncertainty: until probate is complete and all assets valued, the exact IHT position is unknown. A discretionary trust with s144 power allows the trustees to wait for the valuations and then structure the distribution optimally. Requirement: the appointment must be within 2 years of the date of death. Strict conditions apply — specialist legal advice is essential.
The IPDI trust and RNRB — protecting the residential nil-rate band through a will trust
One of the most important IHT applications of will trusts is the Immediate Post-Death Interest (IPDI) trust used to preserve the Residence Nil-Rate Band (RNRB) for the surviving spouse's estate. How it works: (1) First death: the deceased's will creates an IPDI trust for the residential property. The surviving spouse has the right to occupy the property for their lifetime (or a lesser period). The property passes into the IPDI trust. Spousal exemption (s18 IHTA) applies: no IHT on first death. (2) During the IPDI: the surviving spouse is treated as owning the property for IHT purposes (s49(1) IHTA). The value (including any future growth) is in the surviving spouse's estate. (3) On the surviving spouse's death: the property passes from the IPDI trust to the children (lineal descendants — s8K IHTA). The RNRB (up to £175,000 for 2026/27) applies to this transfer because: the property is a qualifying residential interest (QRI — s8H IHTA, which includes IPDI property); it passes to lineal descendants. The surviving spouse's tRNRB (IHT436 — not automatic) from the first death can also be claimed if the deceased's RNRB was unused. With full tRNRB + RNRB = £350k. For an estate below £2m: the full £350k in residential threshold is available. Important: the RNRB is reduced by any outstanding mortgage on the property (s8H(4) IHTA — the QRI net value). And the RNRB taper applies to estates above £2m (s8E IHTA) — tapering to zero above £2.35m (single) or £2.7m (widowed).
When to use a discretionary will trust vs an IPDI
The choice between a discretionary trust and an IPDI in a will depends on the couple's objectives and the estate size: Choose an IPDI when: (1) the primary goal is to ensure the surviving spouse can live in the family home for life while protecting the children's inheritance from a subsequent spouse; (2) you want to preserve the RNRB through the trust (IPDI property qualifies as QRI for RNRB purposes); (3) the surviving spouse is comfortable being the life tenant (receiving income/use) without needing access to capital; (4) the estate is likely to remain below the RNRB taper threshold (£2m) during the surviving spouse's lifetime. Choose a discretionary trust when: (1) the estate is large (above £2m) and IHT flexibility is needed — the s144 IHTA power within 2yr is vital; (2) you want maximum protection for beneficiaries from creditors/divorce; (3) you want trustees to have discretion over who benefits and how much (e.g., multiple children with different needs); (4) you want to be able to pivot the distribution based on future tax law changes or family circumstances that cannot be predicted today; (5) BPR-qualifying assets within the trust — a discretionary trust can hold AIM shares qualifying for BPR; the trust itself holds the shares; periodic/exit charges would be based on non-qualifying assets only (BPR offsets the charge). Note: an IPDI and a discretionary trust can be combined in the same will — e.g., IPDI for the family home (preserving RNRB) plus a discretionary trust for investment assets (preserving flexibility).
Trust registration, administration, and ongoing compliance
All express trusts (including will trusts) must be registered with HMRC's Trust Registration Service (TRS) within specific deadlines. TRS registration: most discretionary will trusts and IPDI trusts must be registered with HMRC within 90 days of the trust coming into effect (i.e., within 90 days of the date of death for will trusts). Exceptions (no TRS registration required): trusts that are wound up within 2 years of the date of death (e.g., a discretionary trust where s144 IHTA appointments are made within 2yr, closing the trust); bare trusts (nominee/holding structures); charitable trusts; statutory trusts. Annual compliance for discretionary trusts: SA900 estate/trust tax return required annually if the trust has income exceeding £100, or capital gains, or is required to make ongoing distributions. Trustees must keep proper accounts of trust income, expenditure, and capital. Periodic charge: 10yr charge must be calculated and paid by the trustees on each 10th anniversary of the trust's creation. Exit charge: calculated when capital leaves the trust. Professional trust administration: most families use a solicitor or professional trustee firm to manage will trusts, particularly discretionary trusts with ongoing administration requirements. Cost: typically £500-£1,500/yr for simple trusts; more for complex ones. Factor this ongoing cost into the decision to use a will trust.
Frequently Asked Questions
What is an Immediate Post-Death Interest (IPDI) trust and how does it work for IHT?
An IPDI trust (s49A IHTA 1984) is a will trust where a beneficiary has an immediate right to income or use of the trust assets from the date of death. The most common use: a surviving spouse has the right to occupy the family home (or receive investment income) for their lifetime via an IPDI. IHT treatment: the IPDI beneficiary (surviving spouse) is treated as OWNING the trust assets for IHT (s49(1) IHTA). On first death: s18 IHTA spousal exemption applies to assets passing into the IPDI trust — no IHT. On the surviving spouse's death: the full value of the IPDI assets (property + growth) is in the surviving spouse's estate. RNRB: the residential property in an IPDI counts as a qualifying residential interest (s8H IHTA) — if it then passes to lineal descendants on the surviving spouse's death, the RNRB (up to £175k) applies to that property. The IPDI preserves the RNRB for the second estate explicitly through the will trust structure.
What is the s144 IHTA power in a discretionary will trust?
Section 144 IHTA 1984 provides that if a discretionary will trust appoints (distributes) assets to beneficiaries within 2 years of the deceased's death, the appointment is treated as if made by the will directly — for IHT purposes. This gives the executors/trustees a 2-year window after death to restructure how the estate is distributed based on actual estate values, tax position, and family needs. Practical uses: (1) Maximise tNRB (IHT402): redirect assets to the surviving spouse to ensure the first spouse's full NRB is preserved as tNRB; (2) Trigger the 36% charitable rate (s36 IHTA): appoint ≥10% of the baseline to charity within 2yr; (3) Optimise BPR: direct qualifying business assets to beneficiaries who can benefit most from BPR. Note: the s144 appointment must not itself create an IHT charge (must be within the NRB or before the first 10yr charge). Specialist advice is essential. The s142 IHTA deed of variation (by beneficiaries) can achieve similar results outside the trust context.
Should I use a NRB discretionary trust in my will?
Probably not — for most modern couples, the transferable nil-rate band (tNRB — s8A IHTA 1984, IHT402) makes a NRB discretionary trust (NRB DT) unnecessary for IHT purposes. Before 2007, each spouse's NRB was lost unless used on their own death — hence the NRB DT. After 2007: the tNRB allows the surviving spouse to use the first spouse's unused NRB on the second death, up to 100% (£325k). If you already have tNRB available, an NRB DT is redundant for IHT. Trap: if an old will with an NRB DT is still in effect, the assets that pass into the NRB DT on first death DO use the first spouse's NRB — meaning less tNRB is available at the second death. An NRB DT in an old will may actually COST IHT compared to leaving everything to the spouse (which preserves 100% tNRB). Review and update old wills. Exceptions: an NRB DT may still be useful for non-IHT reasons (asset protection, creditor protection, subsequent marriage protection) — just not for IHT on its own.
Do will trusts pay inheritance tax?
Depends on the trust type: IPDI trusts — no separate IHT on the IPDI itself; the assets are in the life tenant's estate and subject to IHT on the life tenant's death. On first death: spousal exemption may apply (s18 IHTA). Discretionary trusts — subject to the 'relevant property' regime: 10-year (periodic) charge (s64 IHTA): broadly 6% of trust value above NRB (£325k) at each 10yr anniversary. Exit charge (s65 IHTA): pro-rated periodic charge rate × fraction of 10yr period when capital exits. Maximum 6% cumulative. These charges are relatively modest compared to the 40% IHT that might otherwise apply. Bereaved Minors Trusts (s71A IHTA): no periodic or exit charges while the minor is under 18. Section 71D (18-to-25) trusts: moderate exit charges (max ~4.2%) between 18 and 25. Disabled person's trusts (s89 IHTA): treated as in the disabled beneficiary's estate — no periodic/exit charges.
Can a will trust help with the RNRB for a family home?
Yes — an Immediate Post-Death Interest (IPDI) will trust for the family home can help ensure the RNRB (Residence Nil-Rate Band — s8D IHTA, £175k for 2026/27) applies at the second death. How: on first death, the family home passes into an IPDI trust (surviving spouse is the life tenant — occupies it for life; children are the remaindermen). Spousal exemption (s18 IHTA) applies — no IHT on first death. The property is a 'qualifying residential interest' (QRI) under s8H IHTA (which explicitly includes IPDI property). On the surviving spouse's death: the property passes from the IPDI to the children (lineal descendants). RNRB applies: up to £175k. tRNRB (IHT436): if the first spouse's own RNRB was unused (or the first spouse left an IPDI to the surviving spouse), the tRNRB can be claimed — up to £175k. Together: RNRB + tRNRB = up to £350k. Note: the RNRB taper (s8E IHTA) applies if the surviving spouse's estate exceeds £2m — reducing to zero above £2.35m (single RNRB) or £2.7m (for combined RNRB + tRNRB). Outstanding mortgage reduces the QRI net value (s8H(4) IHTA).
Old Wills with NRB Discretionary Trusts Need Reviewing
If your will was drafted before 2007 and contains an NRB discretionary trust clause, it may now be reducing the transferable nil-rate band available on the second death. This could cost significant IHT. Review with a solicitor and update if necessary.
Will Trusts Require Professional Drafting — Start with a WillSafe Kit
Whether you need an IPDI, a discretionary trust, or a simpler will, WillSafe will kits provide the foundation for professional advice. From £39.99.
View Will Kits from £39.99