A Guide to Inheritance Tax Planning & Trusts
12th February, 2025
Inheritance tax refers to the tax on the property of someone who’s passed away. Did you know that inheritance tax primarily affects the most affluent households? When most people pass away, they won’t pay inheritance tax on their property – only 4% of estates do.
What Are Trusts?
Simply put, a trust is a way you can manage your assets, such as money, land, investments or buildings. There are three main participants in a trust:
- The settlor – Someone who puts assets into the trust
- The trustee – Someone who manages the trust
- The beneficiary – Someone who benefits from the trust
Trusts can be used for a number of reasons:
- To handle and protect family assets
- To pass on assets when a settlor passes away
- To control how assets are used
- To reduce inheritance tax
- To safeguard against divorce or debt
Still slightly confused? Here’s an example to help you understand further… Imagine you own something valuable like a car or a house. Instead of owning it directly, you give it to a trust.
This trust is managed by someone of your choice – the trustee. It’s the trustee’s job to look after whatever you put in the trust. They can use it for the benefit of themselves or even you (the beneficiary).
Simply put, a trust is a way for you to control how and when your assets are used if you’re unable to manage them yourself, even after you’re gone.
Types of Trusts
There is a wide range of different types of trusts, however, the main types are:
- Bare trusts
- Interest in possession trusts
- Discretionary trusts
- Accumulation trusts
- Non-resident trusts
- Settlor-interest trusts
- Mixed trusts
| Type of Trust | Definition |
|---|---|
| Bare Trusts | Allows the beneficiary to have immediate access and all rights to the trust’s capital, assets and income. |
| Interest in Possession Trusts | This trust requires the trustee to pass on all trust income to the beneficiary as and when necessary. |
| Discretionary Trusts | This trust gives trustees the responsibility of making certain decisions. |
| Accumulation Trusts | Allows the trustees to accumulate money within the trusts. |
| Non-resident Trusts | This is a trust made for trustees that are not residents of the United Kingdom. |
| Settlor-interest Trusts | A trust where the settlor or their spouse can benefit from the trust. |
| Mixed Trusts | A mixed trust is made up of more than one trust. |
Can You Use Trusts to Minimise Inheritance Tax?
Simply put, you can use some trusts to minimise inheritance tax. But how? Trusts can be an effective tool for reducing inheritance tax (IHT) liability by transferring assets out of your estate.
This is because when you place your money or assets into a trust, legally, they aren’t yours anymore. Ownership of these assets transfers to the trustee.
However, whether these assets are taxed depends on the type of trust. For example, with revocable or irrevocable trusts, you risk being taxed.
A revocable trust allows you to revoke your money, meaning the assets are still part of your estate. An irrevocable trust can remove assets from your estate for IHT, but may trigger other taxes, such as capital gains tax.
This is why it is important to research the different types of trusts and their terms and conditions.
So, Do You Have to Pay Inheritance Tax?
As mentioned, the main way to avoid inheritance tax is to get married. But that’s not the only way.
You don’t pay inheritance tax on the first £325,000 you leave to others. If your assets are below this, no inheritance tax is due. If you leave your main home to your children, this allowance rises to £500,000 (for estates under £2 million).
It is mainly affluent households that are affected. If your property is valued under £325,000, inheritance tax likely isn’t a concern.
Simplify Inheritance Tax and Trust Planning with Haggards Crowther
Here at Haggards Crowther, we offer expert assistance with inheritance tax planning and trust services to help you and your family.
Our team of Chartered Accountants and Chartered Tax Advisers provides expert support to minimise tax liabilities and efficiently transfer assets to future generations.
We aim to build strong client relationships by offering professional, straightforward, and friendly advice tailored to each client’s needs and goals.
For more information on the services we offer or to learn more about inheritance tax or trust planning, contact us today. We look forward to hearing from you!
Andrew founded Haggards Crowther with his brother in 2004 and took over as Managing Partner in May 2023. He has always been closely involved in client work, in particular providing high level strategic tax and structuring advice, business advice and supporting the technical and compliance teams.
As Managing Partner, he has focussed on growing the business and ensuring the firm upholds its core values of Quality of Service, Innovation, Collaboration and Integrity. These remain central to all that we do both internally and in serving our clients.
A Fulham resident for over 30 years Andrew is closely connected with the local business community and supporting many of them on their journeys. He is especially linked with fellow start-up entrepreneurs advising them on their growth strategies and optimal structures.
A passionate Fulham FC supporter, along with his two sons, Andrew rarely misses a game. He plays and coaches volleyball, something he has done since university in Edinburgh, and which offsets another of his passions: exploring the vast and diverse range of food that London’s restaurants have to offer.
He has a keen interest in many conservation projects especially in protecting endangered species of birds and actively supports the Mabula Project in South Africa. This charity supports the Southern Ground Hornbill, a charismatic species of cultural and ecological importance threatened by loss of habitat through the encroaching development of the savannah.
