With the latest HMRC data showing inheritance tax receipts stood at £1.4 billion in May 2026 and higher receipts expected in the coming years, many families may be taking a closer look at how they plan to pass on wealth. With less than a year to go until unused pension funds are brought into the scope of inheritance tax and the inheritance tax nil rate band frozen until at least 2031, estate planning is becoming an increasingly important consideration for those looking to maximise what they leave behind.
With the latest HMRC data showing inheritance tax receipts stood at £1.4 billion in May 2026 and higher receipts expected in the coming years, many families may be taking a closer look at how they plan to pass on wealth.
With less than a year to go until unused pension funds are brought into the scope of inheritance tax and the inheritance tax nil rate band frozen until at least 2031, estate planning is becoming an increasingly important consideration for those looking to maximise what they leave behind.
Marcia Banner, Senior Tax and Trust Consultant at St. James’s Place says: “One of the most straightforward ways to reduce a potential IHT bill is to gift assets during your lifetime. However, an outright gift means giving up control entirely, which is not always suitable, particularly where beneficiaries are younger, financially inexperienced or where there may be concerns around divorce or third-party claims.
This is where trusts can be useful. They allow assets to be held and passed on in a more structured way, with trustees often having the discretion to decide who benefits, when and by how much, guided by the wishes of the person setting up the trust.
Trustees can also use trust funds in practical ways, such as helping provide a home for a beneficiary – and where the trust owns the asset, this may offer more security than gifting the money directly, although much will depend on the structure of the trust and individual circumstances.
Trusts can also support longer-term, intergenerational planning. With a discretionary trust, the trust assets will sit outside a beneficiary’s estate for inheritance tax purposes, while still being available to support them when needed. This can be particularly valuable as more estates – including those of adult children – are drawn into the IHT net.
Important things to consider when deciding whether to set up a trust
“It is important that you give the tax implications of placing or holding assets in a trust careful consideration when deciding if this is the right option for you. Income received by and rolled up within a trust may be taxed at a higher rate than the rates applicable to individual beneficiaries, and some trusts may be subject to inheritance tax charges in their own right.
In addition, once assets have been placed into a trust, it is not usually possible to reverse the arrangement, and in some cases, restrictions may apply which prevent the trust assets from being accessed in a different way from how originally intended, which means careful planning from the beginning is essential.
Discretionary trusts, for example, can face inheritance tax charges every ten years if the value of the trust fund exceeds the nil rate band available to the trust. This will usually be £325,000 if the trust has been created by a single settlor who has made no previous gifts to trust in the last ten years. Any excess will be subject to a 6% tax charge.
Another key consideration is access. While it is sometimes possible to reduce the value of your estate and still benefit from assets, the rules are strict. If you continue to benefit from funds you have given away, those funds will usually still be counted as part of your estate for IHT.
Certain established arrangements – such as discounted gift trusts can provide access to fixed regular payments while still facilitating an IHT-effective gift. However, these arrangements are complex and require careful structuring, so it is strongly recommended that anyone in this situation take financial advice.
While trusts can be very effective, especially for reducing the value of the estate for IHT purposes and providing flexibility and continued control over the gifted assets, they need to be set up for the right reasons and as part of a wider estate plan. Speaking to a professional financial adviser can help families understand whether a trust is appropriate, what trade-offs are involved, and whether there are simpler options available.”
