Putting Your House in Trust UK (2026): Does It Avoid Inheritance Tax? The Reservation of Benefit Trap

Only if you no longer benefit from the property. If you transfer your home into a trust during your lifetime but continue to live in it rent-free, HMRC's reservation of benefit rules apply — the property is treated as still part of your estate for IHT purposes and you get no tax saving. To remove your home from your estate, you must either stop living there, or pay a full market rent to the trust. Neither is practical for most people.

The reservation of benefit rule (Finance Act 1986, s102) says that if you give away an asset but continue to benefit from it, the gift is treated as never having been made for IHT purposes. Applied to property: if you put your home in a trust, your children become the legal owners, but you still live there — HMRC treats the full value of the property as part of your estate on death. The rule catches lifetime trusts specifically. Trusts created by your will after death are not affected.

A life interest trust (also called an interest in possession trust) is created in your will and comes into effect on death. It gives a named person (usually a surviving spouse or partner) the right to live in the property for their lifetime, after which it passes to the named beneficiaries (usually children). For IHT purposes, the property is still in the surviving spouse's estate — but if the trust is structured correctly and left to direct descendants, the Residence Nil Rate Band still applies on the second death. A life interest trust is primarily used for asset protection in second marriages, not direct IHT saving.

No — not if done within a foreseeable period of needing care. Local councils apply deprivation of assets rules: if you transferred your property into a trust specifically to reduce your assessable capital for care funding, the council can treat you as still owning it when assessing care costs. There is no fixed time limit, unlike the IHT 7-year rule. If the transfer was made when care was not foreseen, the rules are less likely to apply — but there are no guarantees. Advice from a specialist care fee adviser is essential before taking any action.

Discretionary trusts holding property are subject to three IHT charges: (1) an entry charge of up to 20% on assets above the nil rate band when transferred in; (2) a ten-year periodic charge of up to 6% of the trust's value above the NRB, levied every 10 years; (3) an exit charge when assets leave the trust, proportional to how long since the last 10-year charge. These charges apply regardless of whether the trust was created during lifetime or by will. Proper trust administration and annual accounting are required.

Trusts make sense for property in specific circumstances: (1) a life interest trust in a will for a second marriage — protecting children's share while giving the surviving partner a right to live in the property; (2) a disabled beneficiary trust — for a child who cannot manage money; (3) trusts in a will for minor children — holding property until they are old enough to manage it; (4) a lifetime gift more than 7 years before death where you genuinely vacate the property. Outside these situations, trusts often create unnecessary cost and complexity without delivering tax benefits.

No — they are very different. A will trust is created in your will and only takes effect on your death. You retain full ownership and control of your property during your lifetime. A lifetime trust is a legal transfer of the property now — you give up ownership today. Will trusts are not affected by the reservation of benefit rule. Lifetime trusts are subject to the rule and typically fail to deliver the IHT saving people expect. For most homeowners, a well-drafted will with appropriate trust provisions is the safer, cheaper, and more effective option.