Nil Rate Band Discretionary Trust UK (2026): How It Works & Is It Still Worth It?
Updated 13 May 2026 · 9 min read · England & Wales
A nil rate band discretionary trust (NRB trust) is a provision written into a will that, on the first death of a couple, shelters up to £325,000 in a trust rather than passing it outright to the surviving spouse. The trust assets fall outside the survivor’s estate for inheritance tax. Once a mainstream IHT-planning tool for every married couple, NRB trusts are now used selectively — but in the right circumstances they remain highly valuable.
What is the nil rate band?
The nil rate band (NRB) is the threshold below which no inheritance tax is charged on a deceased person’s estate. In 2026/27 it is £325,000 per person, frozen at that level until at least April 2030. Estates above the NRB pay IHT at 40% on the excess (or 36% where 10%+ goes to charity).
Transfers between spouses and civil partners are exempt from IHT (the spouse exemption). But that means if you leave everything to your spouse, your NRB is “wasted” — it is not used on your death. The NRB discretionary trust was designed to use the first spouse’s NRB rather than losing it.
How an NRB discretionary trust works
- First death: instead of all assets passing to the surviving spouse, assets up to the NRB (£325,000) are directed into a discretionary trust. The spouse exemption does not apply to this portion, but no IHT is due because the trust assets are within the NRB.
- During the trust’s life: trustees (which can include the surviving spouse) can pay income or capital to any beneficiary in the class — typically the surviving spouse, children, and grandchildren. The survivor has no automatic entitlement; payments are at the trustees’ discretion.
- Second death: the trust assets pass to the final beneficiaries (usually children) free of IHT, because they were never part of the survivor’s estate.
Result: on the second death, two nil rate bands have been used — one on each death — rather than only one. The combined saving is up to £130,000 in IHT (£325,000 × 40%).
Is an NRB trust still worth it after the transferable nil rate band?
The transferable nil rate band (TNRB), introduced in 2007, allows the surviving spouse to inherit any unused NRB from the deceased spouse. If the first spouse leaves everything to the survivor (using the full spouse exemption and therefore using 0% of their NRB), the survivor inherits 100% of the first spouse’s unused NRB — giving a combined threshold of £650,000 on the survivor’s death.
For most straightforward married-couple estates, TNRB achieves the same IHT outcome as an NRB trust with far less complexity. However, NRB trusts still have advantages in these situations:
1. Care home fee protection
Assets in a discretionary trust do not belong to the surviving spouse. If the survivor later needs to fund residential care, the local authority means test applies only to the survivor’s own assets. Trust assets are not included in the assessment (provided the trust was not set up primarily to avoid care fees — deliberate deprivation rules apply).
2. Protection on remarriage
If the surviving spouse remarries, their new spouse could ultimately benefit from the entire estate (through intestacy or a new will). Assets held in an NRB trust remain protected for the original children or beneficiaries — they cannot be diverted to a new family.
3. Estate equalisation for the residence nil rate band
The residence nil rate band (RNRB) — an additional £175,000 per person where a home is left to direct descendants — tapers to zero for estates over £2 million. Where one spouse has a significantly larger estate, equalising between the two estates can preserve both RNRB allowances. An NRB trust can form part of that equalisation strategy.
4. Unmarried couples
TNRB is available only to married couples and civil partners. Unmarried cohabiting partners receive no spouse exemption and cannot transfer nil rate bands. An NRB discretionary trust in each partner’s will is one way to make use of each individual NRB.
The loan or “charge-back” mechanism
Where the main asset is a jointly-owned property, the NRB trust cannot simply hold a physical share of the home without potentially forcing a sale. The usual solution is a loan arrangement: the trust “lends” the NRB amount to the surviving spouse in exchange for a charge over the property. The loan is repayable on the second death (from the property sale proceeds), at which point it passes to the trust beneficiaries free of IHT. This avoids disruption to the survivor’s occupation of the home while preserving the tax position.
Tenants in common vs joint tenants
For an NRB trust to work with a jointly-owned home, the property must be held as tenants in common, not joint tenants. Joint tenancy passes automatically to the survivor by the right of survivorship, bypassing the will entirely. If you currently hold your home as joint tenants, the tenancy must be severed (by a written notice) before an NRB trust can be funded with a share of the property.
| Scenario | NRB trust useful? | Reason |
|---|---|---|
| Simple married couple, moderate estate | Usually not | TNRB achieves same IHT outcome with less cost |
| Survivor may need care home fees | Yes | Trust assets excluded from means test |
| Children from a previous relationship | Yes | Protects first family’s share on survivor’s remarriage |
| Estate over £2m (RNRB taper) | Consider | Equalisation may preserve RNRB for both spouses |
| Unmarried cohabiting couple | Yes | No TNRB available; each NRB must be used individually |
NRB trust vs life interest trust
A life interest trust gives the surviving spouse an automatic right to income or occupation for life (an “immediate post-death interest”). HMRC treats these assets as part of the survivor’s estate for IHT — so a life interest trust over the NRB does not achieve the same IHT saving as a discretionary trust.
A discretionary trust, by contrast, gives the survivor no fixed entitlement. The trustees exercise their discretion. This discretionary character is essential to keeping the assets outside the survivor’s estate.
Practical steps
- Take specialist estate planning advice — NRB trusts require professional drafting.
- Check how your property is held: if joint tenants, sever the tenancy first.
- Decide on trustees — the survivor can be a trustee but should not be the sole trustee.
- Ensure the trust powers are broad enough to allow loans back to the survivor.
- Review periodically: the nil rate band is frozen, but estate values change.
Frequently asked questions
What is a nil rate band discretionary trust?
A nil rate band discretionary trust (NRB trust) is a trust written into a will that, on the first death of a married couple or civil partners, places assets up to the nil rate band (currently £325,000) into a discretionary trust rather than passing them outright to the surviving spouse. The trust assets are outside the survivor's estate for inheritance tax purposes. The surviving spouse can benefit from the trust at the trustees' discretion, but does not own the assets. On the survivor's death, the trust assets pass to the final beneficiaries (typically children) free of IHT, because they were never part of the survivor's estate.
Why were NRB trusts created, and are they still relevant after the transferable nil rate band?
NRB trusts were widely used before October 2007 because the spouse exemption meant the nil rate band was 'wasted' on the first death if everything passed to the survivor. The Finance Act 2008 introduced the transferable nil rate band (TNRB), allowing a surviving spouse to inherit their deceased spouse's unused NRB, effectively doubling the combined threshold to £650,000. This removed the main tax driver for NRB trusts in most cases. However, NRB trusts still offer advantages in specific situations: protecting assets from the survivor's care home fees or remarriage, estate equalisation to preserve two lots of the residence nil rate band, and in unmarried couples who cannot use TNRB.
Can the surviving spouse benefit from a nil rate band discretionary trust?
Yes — that is the point. The trust is discretionary, meaning the trustees have power to pay income or capital to any of the beneficiaries, which typically includes the surviving spouse and children. The survivor can ask the trustees for funds and the trustees can pay them. Critically, the survivor does not have a fixed entitlement to the trust assets — this is what keeps the assets outside the survivor's estate. If the survivor had an automatic right to the trust assets, HMRC would treat those assets as part of the survivor's estate under the 'enjoyment to settlement' rules.
What assets can be put into a nil rate band discretionary trust?
Any assets up to the nil rate band (£325,000 in 2026/27). In practice, the most common approach is to direct a specific sum of money or a share of the residuary estate equal to the NRB into the trust. Property can also be used, but tenants in common ownership is required (not joint tenants, which passes by survivorship). This is why couples whose main asset is a jointly-owned home in joint tenancy often need to sever the tenancy first if they want to use an NRB trust effectively.
What is the difference between a nil rate band discretionary trust and a life interest trust?
A life interest trust (also called an interest in possession trust) gives the surviving spouse an automatic right to income and/or occupation for life. The assets pass to the remaindermen (e.g. children) on the survivor's death. Because HMRC treats the survivor's interest as an 'immediate post-death interest', the trust assets are included in the survivor's estate for IHT — so there is no IHT saving. A nil rate band discretionary trust gives the survivor no automatic entitlement: income and capital are paid at the trustees' discretion. This discretionary structure is what keeps the assets outside the survivor's estate.
Does a nil rate band discretionary trust affect the residence nil rate band?
Potentially, yes. The residence nil rate band (RNRB, £175,000 in 2026/27) requires the property to be 'closely inherited' — left directly to children or lineal descendants. If a property passes into an NRB discretionary trust rather than outright to children, the RNRB is not available on the first death (though the survivor's RNRB is still intact). On the second death the RNRB and transferred RNRB apply normally. For estates where RNRB is important, careful drafting is needed to avoid inadvertently losing it.
How do I include a nil rate band discretionary trust in my will?
An NRB discretionary trust requires professional will drafting — a boilerplate DIY will kit cannot replicate the trust mechanics. A solicitor experienced in estate planning will draft the trust provisions, including: the class of beneficiaries (usually survivor plus children/grandchildren), trustee appointment and powers, investment and advancement powers, and the loan or charge-back mechanism so the trust can hold its share of a property without forcing a sale. The cost is typically £500–£1,500 for a pair of mirror wills with NRB trust provisions.
Start with a solid foundation
WillSafe’s DIY will kit is designed for straightforward estates. If you need an NRB discretionary trust, we recommend pairing our kit with specialist estate planning advice. Either way, having a valid will in place now is far better than dying intestate.
Get the will kit →Related guides
- Discretionary trusts in wills — the basics
- The nil rate band explained
- Residence nil rate band — how it works
- Life interest trusts in wills
- How to reduce your inheritance tax bill
- Joint tenants vs tenants in common