Wills & Trusts9 min read
Trust vs. Straight Will: Which Delivers the Better IHT Outcome?
•By Rosewood Financial Planning
Side-by-side numbers on leaving assets outright, via discretionary trust or with a life-interest trust.
Three routes compared (allowances & reliefs shown)
Key Assumptions: NRB £325k each (transferable) • RNRB £175k each if home to direct descendants •
RNRB tapers £1 per £2 when estate > £2m • Spouse/charity exemptions apply •
Business/Agricultural Property Relief may reduce value of qualifying assets.
1. Outright to Beneficiaries
IHT at Death:
40% on value above available allowances
40% on value above available allowances
Allowances Used:
✓ NRB/transferable NRB
✓ RNRB if home → direct descendants (tapers if estate > £2m)
✓ NRB/transferable NRB
✓ RNRB if home → direct descendants (tapers if estate > £2m)
Reliefs Available:
✓ Spouse/charity exemptions
✓ BPR/APR can reduce qualifying assets
✓ Spouse/charity exemptions
✓ BPR/APR can reduce qualifying assets
Ongoing Costs:
None
None
2. Life-Interest Trust (IPDI)
IHT at Death:
Often nil at first death if life tenant is spouse (spouse exemption).
Tax arises on life-tenant's death.
Often nil at first death if life tenant is spouse (spouse exemption).
Tax arises on life-tenant's death.
Allowances Used:
NRB usually preserved for life-tenant's death
RNRB potentially at second death (subject to taper)
NRB usually preserved for life-tenant's death
RNRB potentially at second death (subject to taper)
Reliefs Available:
✓ Spouse exemption at first death
✓ Trust assets treated as part of life-tenant's estate
✓ Spouse exemption at first death
✓ Trust assets treated as part of life-tenant's estate
Ongoing Costs:
No 10-yr/exit charges while IPDI exists
Standard trustee fees
No 10-yr/exit charges while IPDI exists
Standard trustee fees
3. Discretionary Trust
IHT at Death:
If created by Will: counts in deceased's estate
RNRB usually not available if home passes into discretionary trust
If created by Will: counts in deceased's estate
RNRB usually not available if home passes into discretionary trust
Allowances Used:
✓ NRB (reduces available allowance)
✗ RNRB typically No (unless structured to qualify)
✓ NRB (reduces available allowance)
✗ RNRB typically No (unless structured to qualify)
Reliefs Available:
✓ Spouse/charity exemptions if those are beneficiaries
✓ Very flexible control over distributions
✓ Spouse/charity exemptions if those are beneficiaries
✓ Very flexible control over distributions
Ongoing Costs:
Relevant-property regime:
• 10-year charges (up to ~6% effective)
• Exit charges
• If lifetime: possible 20% entry charge above NRB
Relevant-property regime:
• 10-year charges (up to ~6% effective)
• Exit charges
• If lifetime: possible 20% entry charge above NRB
Important Notes: RNRB tapers by £1 for every £2 that the estate exceeds £2m.
Relevant-property trusts face periodic and exit charges. Lifetime transfers into discretionary
trusts can trigger entry charges above available NRB. Professional advice essential for complex estates.
When a trust wins
- Minor or vulnerable beneficiaries.
- Second marriages (protecting children from first marriage).
- Asset-protection against divorce or creditors.
Need Professional IHT Advice?
Our expert advisers can help you implement the strategies discussed in this article and develop a comprehensive inheritance tax plan tailored to your specific circumstances.