Multiple Pilot Trusts and the Rysaffe Principle: IHT Periodic Charge Planning
Discretionary trusts set up on different days are not related settlements — so each gets its own nil-rate band for the IHT 10-year periodic charge. Finance Act 2014 restricted same-day additions, but the Rysaffe principle for trusts made on different days still applies.
Key Rules at a Glance
Frequently Asked Questions
What is a pilot trust and why is it used?
A pilot trust is a small discretionary trust set up during the settlor's lifetime, typically with a nominal sum (£10 or £100). Its purpose is to receive assets on the settlor's death — most commonly a pension lump sum (where the scheme trustees exercise their discretion to pay into the trust), a life insurance policy pay-out, or a gift under a will. By directing these death benefits into a pre-existing discretionary trust rather than the estate directly, the assets may fall outside the estate for probate and, depending on the nature of the asset, for IHT. A pilot trust is also used to receive future additions and is administered as a full discretionary trust.
What is the Rysaffe principle for multiple trusts and IHT?
In Rysaffe Nominee Co Ltd v IRC [2003] STC 536, the Court of Appeal held that discretionary trusts settled by the same settlor on different days are not 'related settlements' for the purposes of IHTA 1984. Under s64 IHTA 1984, the IHT 10-year periodic charge on a discretionary trust is calculated after deducting the nil-rate band — but the NRB is shared between the trust and any related settlements. If trusts are not related (because they were made on different days), each trust has its own full NRB when calculating the periodic charge. The practical result: a settlor who set up, say, ten pilot trusts on ten different days could add the same total sum to all of them and each trust would benefit from the full £325,000 NRB — potentially eliminating periodic charges entirely.
How did Finance Act 2014 change the multiple trust planning?
The Finance Act 2014 introduced s62A IHTA 1984 (the 'same-day addition' rule) to counteract the most aggressive multiple trust planning. Under s62A, where the same settlor makes additions to two or more settlements on the same day, those additions are aggregated for the purposes of calculating the 10-year periodic charge and exit charges — even if the trusts were originally made on different days. This means that a strategy of adding £325,000 to ten different trusts on the same day would result in all ten additions being pooled for IHT purposes, as if they were one £3.25 million addition. However, the FA 2014 rule only applies to same-day additions made on or after 6 April 2015. Additions made on different days are still not aggregated under the Rysaffe principle — multiple trusts with staggered additions on different days still work. The original trust creation on different days also remains unaggregated.
Do the Rysaffe rules still work for pension death benefits in 2026?
The Rysaffe principle for pension death benefits into pilot trusts has become significantly less relevant following the Autumn Budget 2024 announcement that pension pots will be brought within the scope of IHT from 6 April 2027. Before this change, pension death benefits paid into a pilot trust could escape IHT entirely (as an unregistered trust outside the estate). After April 2027, pension funds remaining on death will form part of the IHT estate — making the pilot trust route for pensions less attractive from an IHT perspective. That said, pilot trusts remain useful for non-pension assets, keeping beneficiaries' entitlements out of probate, and for those who want to name their own trustees rather than rely on the scheme trustees' discretion.
What is a 'related settlement' for IHT purposes?
Under s62 IHTA 1984, two settlements are related if: (1) they were made by the same settlor; and (2) they were made on the same day. Settlements made on different days are not related, even if the settlor, trustees, and beneficiaries are identical. Settlements made by different settlors are also not related — so a husband and wife can each set up separate trusts on the same day without those trusts being related to each other (though they may be 'associated operations'). The related settlement rule is significant because it causes the NRBs of related settlements to be shared between them — reducing the periodic charge protection. Non-related settlements each have their own full NRB for periodic charge purposes.
Use a Will Trust to Benefit Future Generations
Will trusts created on death avoid the periodic charge complexity of lifetime pilot trusts — and the settlor-interested rules cannot apply. Draft your will with WillSafe from £19.97.