Pilot Trust UK (2026): How Pilot Trusts Work for IHT Planning and the Impact of the Finance Act 2015 Same-Day Addition Rules

A pilot trust (also called a 'shell trust' or 'waiting trust') is a discretionary trust established during the settlor's lifetime with a nominal sum, typically £10, £100, or another small amount, specifically to establish the trust as a legal entity with its own creation date, before any substantial assets are added to it: (1) THE BASIC CONCEPT: by establishing the pilot trust (settling the nominal sum on the trustees), the settlor 'pilots' the trust into existence. The trust has trustees, a trust deed, and a commencement date, but only a nominal fund. The plan is for substantial assets to be transferred into the trust later (either during the settlor's lifetime or on death via the will); (2) WHY THE CREATION DATE MATTERS FOR IHT: discretionary trusts are subject to the 'relevant property' regime under IHTA 1984 ss.58-85: (a) 10-year periodic charge: every 10 years from the date the trust was created, an IHT charge arises on the trust fund. The maximum rate is 6% of the trust fund above the Nil-Rate Band (NRB, £325,000 in 2025-26, frozen until April 2030); (b) the NRB available to the trust is reduced by any chargeable transfers made by the settlor in the 7 years before the trust's creation AND by the value of any property in other trusts created on the same day as this trust; (c) crucially (under the pre-2015 rules): trusts on different days each had their own separate NRB for periodic charge purposes. A settlor who had £650,000 in property they intended to put into trust could create two trusts on two different days and put £325,000 into each, giving each trust its own full NRB, resulting in no 10-year periodic charge (since neither trust exceeded its NRB); (3) THE PRE-2015 PLANNING STRATEGY: the classic pre-2015 pilot trust strategy was: (a) establish Trust A on Day 1 (e.g. nominate pension death benefits to Trust A); (b) establish Trust B on Day 2 (e.g. place life assurance or investment bonds into Trust B); (c) add assets to each trust on different subsequent dates. Because trusts on different days each had their own NRB under the original rules, this effectively doubled (or multiplied, with more trusts) the IHT-free trust fund capacity; (4) COMMON PRE-2015 USES: (a) pension bypass trusts: a pension is 'bypassed' outside the estate using an expression of wishes, and the benefit directed to a discretionary trust established on a different day from the will trust or other trusts; (b) loan trusts and discounted gift trusts created on different days; (c) multiple discretionary will trusts.

Finance Act 2015, amending IHTA 1984, introduced the 'same-day addition' rules that significantly curtailed the multiple pilot trust strategy. The changes are now found in IHTA 1984 s.62 and Schedule 1A (as inserted): (1) THE PRE-2015 RULE (BEFORE 10 DECEMBER 2014): additions to multiple trusts on different days were NOT treated as related for periodic charge calculation purposes. Each trust computed its 10-year charge by reference to its own creation date and its own assets, ignoring other trusts the settlor had created or added to on other days; (2) THE SAME-DAY ADDITION RULE, IHTA 1984 S.62A (EFFECTIVE 6 APRIL 2015): for additions made on or after 6 April 2015, a 'same-day addition' rule applies. If the settlor adds property to two or more trusts on the same day, those additions are treated as if they were made to a single combined trust for the purpose of calculating the notional transfer used in the 10-year periodic charge. Specifically: (a) the NRB is shared across all trusts that received same-day additions from the same settlor; (b) if the settlor adds £200,000 to Trust A and £200,000 to Trust B on the same day, those additions are treated as part of a combined £400,000 notional transfer for NRB allocation purposes, rather than each trust having a separate NRB; (3) HOW THE PERIODIC CHARGE IS AFFECTED: the 10-year periodic charge formula under IHTA 1984 s.64 uses a 'notional transfer' that includes: (a) the trust fund at the periodic charge date; (b) property in related settlements (trusts established on the same day by the same settlor, IHTA 1984 s.62); (c) any chargeable transfers by the settlor in the 7 years before the trust's creation. The same-day addition rule adds a further element: the total value of same-day additions to other trusts. If the combined values exceed the NRB, a 10-year charge arises; (4) WHAT FA 2015 DID NOT CHANGE: (a) trusts established on different days remain separate for the 'related settlement' definition, a pilot trust established 6 months before another trust is NOT a related settlement; (b) only additions made on the same day are caught, not additions on different days; (c) the additions can be made by the settlor into trusts of any date (not just trusts created the same day); (5) THE MISCHIEF FA 2015 WAS AIMED AT: the Chancellor in the Autumn Statement 2014 announced that from 10 December 2014, additions to multiple trusts on the same day would be aggregated. The 'addition date' test caught the practice of adding pension lump sums or death benefit trusts on the same day to multiple pilot trusts.

The Finance Act 2015 significantly restricted the multiple pilot trust strategy but did not eliminate all pilot trust planning. Understanding what still works is critical: (1) WHAT STILL WORKS, ADDITIONS ON DIFFERENT DAYS: if a settlor adds assets to multiple trusts on DIFFERENT days, the same-day addition rule does not apply. This means: (a) adding £325,000 to Trust A in January and £325,000 to Trust B in February (for example) is not caught by the same-day addition rule, each addition is on a different day; (b) the trusts were created on different days (so they are not 'related settlements' under IHTA 1984 s.62); (c) for 10-year periodic charge purposes, Trust A's NRB is not reduced by Trust B's assets (because the additions were on different days); (2) PRACTICAL CHALLENGE, PENSION LUMP SUM ON DEATH: one major area of difficulty is pension death benefits. When a pension member dies, the pension trustees exercise discretion and direct the lump sum death benefit to a discretionary trust (the pilot trust). All payments from a pension on death on the same date, even if directed to multiple trusts, are arguably the same-day additions. HMRC's view is that if the pension trustee directs to multiple pilot trusts on the same day, the same-day rule applies. In practice, it is very difficult to direct pension benefits to multiple pilot trusts on different days (the death occurs on one day); (3) SEPARATE TRUSTS FOR SEPARATE PURPOSES (STILL USEFUL): maintaining separate trusts for structurally separate purposes, where the additions are genuinely made on different days, remains valid planning: (a) a loan trust established during the settlor's lifetime: additions at the time the loan is made (typically a single date); (b) a discounted gift trust: established at a specific date, funded by a single premium; (c) a pension bypass trust: funded on the date of the pension trustee's payment (often a specific date); (d) a discretionary will trust: funded on the date of death. If these four trusts each hold up to £325,000, and each was funded on a different date, the NRB position is preserved for each; (4) HMRC'S CURRENT ATTITUDE: HMRC accepts that pilot trusts remain valid structures where the additions are genuinely on different days. It challenges arrangements where additions to multiple trusts are made artificially on different days purely to circumvent the same-day rule, on Ramsay/Furniss v Dawson composite transaction principles; (5) CONSULTATION AND FUTURE CHANGES: in 2023-24, HMRC consulted on further changes to the relevant property regime. Executors and trustees with existing pilot trust structures should monitor developments.

The 10-year periodic charge on discretionary trusts (including pilot trusts that have been funded) is calculated under IHTA 1984 s.64. Understanding the calculation is essential for assessing whether pilot trust planning generates a genuine IHT saving: (1) THE BASIC FORMULA: the periodic charge is levied at the relevant fraction (typically up to 30%) of the effective rate of 20%, giving a maximum rate of 6%, on the value of the trust fund that exceeds the trust's available NRB. The available NRB is: (a) the standard NRB at the time of the periodic charge (£325,000 in 2025-26); (b) minus any chargeable transfers made by the settlor in the 7 years before the trust was created; (c) minus the value of property in 'related settlements' (trusts created by the same settlor on the same day as this trust, IHTA 1984 s.62); (d) minus (post-FA 2015) same-day additions to other trusts; (2) EXAMPLE, SINGLE PILOT TRUST, NO RELATED SETTLEMENTS: Settlor creates Trust A with £10 in 2020. In 2022, settles £300,000 into Trust A. In 2030 (10-year anniversary from 2020): trust fund has grown to £400,000. Available NRB = £325,000 (assuming frozen NRB; settlor made no other chargeable transfers in the 7 years before 2020). Periodic charge = 6% of (£400,000 - £325,000) = 6% of £75,000 = £4,500. Without the trust: this sum would form part of the estate on death; (3) EXAMPLE, TWO PILOT TRUSTS, SAME-DAY ADDITIONS (POST-2015): Settlor creates Trust A on Day 1 (2020) and Trust B on Day 2 (2021). In June 2025, settlor adds £325,000 to Trust A and £325,000 to Trust B on the SAME day. Same-day addition rule: for each trust's 10-year charge, the notional transfer includes both additions (£650,000 total). Each trust's available NRB is reduced by the other's addition. Assuming NRB is £325,000: combined notional transfer £650,000; NRB £325,000; excess £325,000 shared between the two trusts. Each trust's 10-year charge is therefore based on excess of £162,500, periodic charge per trust: 6% of £162,500 = £9,750; total for both trusts: £19,500 vs nil if additions had been on different days; (4) EXIT CHARGES, IHTA 1984 S.65: when assets leave the trust (other than to a beneficiary absolutely on a distribution and where the trust is within 10 years old), an exit charge arises. The rate is proportional to the time elapsed since the last periodic charge or the trust's creation. Maximum is 6% (at year 10); if assets exit in year 5, the rate is approximately 3%; (5) RECORD-KEEPING OBLIGATION: trustees must keep records sufficient to calculate the 10-year charge (and pay it) and must register the trust with HMRC's Trust Registration Service (TRS) if certain conditions apply. All UK discretionary trusts with UK tax liabilities must register on TRS.

Despite the Finance Act 2015 restrictions, pilot trusts remain useful in specific, carefully structured circumstances in 2026: (1) PENSION BYPASS TRUST (SEPARATE DATE FROM WILL TRUST): a pension bypass trust is established during the settlor's lifetime to receive pension death benefits outside the estate (using an expression of wishes directing the pension trustees to pay the lump sum to the bypass trust). If the bypass trust is established on a different day from the discretionary will trust under the will, the two trusts are not related settlements and additions on different dates avoid the same-day rule. In practice, a pension bypass trust is funded on the date the pension trustees make their payment (the date of the pension trustees' resolution), while the will trust is funded on the date of death. These may be the same date, so care is needed to structure the pension trustee's resolution on a different date from the estate's funding of the will trust; (2) FAMILY PROTECTION DURING ADMINISTRATION: a pilot trust can be funded during the estate administration period to receive assets from the estate at different times (e.g. proceeds of a property sale in month 6 of administration, then a further payment in month 9 after a valuation dispute resolves). Each addition to the same trust on a different date is NOT a same-day addition problem (same-day additions only arise when multiple different trusts receive funding on the same day); (3) KEEPING LOAN TRUST AND WILL TRUST SEPARATE: where a settlor has a loan trust (funded at, say, age 60) and intends a discretionary will trust (funded on death), the two trusts are on different dates and the additions are on different dates. This is valid and still works as pre-2015 planning; (4) LIFETIME GIFTING INTO TRUST ON DIFFERENT DAYS: a settlor who makes multiple lifetime chargeable lifetime transfers (CLTs) into a discretionary trust over several years makes each addition on a different date, no same-day addition problem even with a single trust; (5) WHAT TO CHECK WITH AN ADVISER: before establishing any pilot trust or recommending additions to existing trusts, check: (a) the dates of all other trusts by the same settlor; (b) the proposed addition dates; (c) the settlor's 7-year chargeable transfer history; (d) whether TRS registration is required; (e) the current NRB position and RNRB position (the RNRB does not apply to assets in discretionary trusts, only to direct or immediate post-death interest transfers to direct descendants).