More Families Turn to Trusts to Shield Their Legacy from Rising Inheritance Tax Bills

A Growing Trend in Estate Planning

British families are increasingly turning to trusts as a strategic tool to protect their wealth from inheritance tax, according to recent data from HMRC analyzed by Utmost Wealth Solutions. The numbers tell a compelling story: approximately 121,000 trusts were registered during the 2024-25 tax year, representing a notable increase from the 115,000 registered the previous year. This uptick brings the total number of registered trusts in the UK to at least 835,000, highlighting a growing awareness among families about the importance of proactive estate planning. This surge isn’t happening in a vacuum – it reflects a broader concern among British families about the mounting burden of inheritance tax and the shrinking value of tax-free allowances that have remained frozen for over fifteen years while the cost of living and property values have soared.

The rise in trust registrations represents more than just numbers on a spreadsheet; it reflects real families taking practical steps to ensure their hard-earned wealth can be passed on to their children and grandchildren without being significantly diminished by tax obligations. As property values have climbed and investment portfolios have grown, many middle-class families who never previously considered themselves wealthy enough to worry about inheritance tax are now finding themselves caught in its net. The trust has emerged as one of the most effective legal tools available to families who want to maintain control over how their assets are distributed while potentially reducing their tax liability, provided they plan sufficiently far in advance.

The Inheritance Tax Squeeze: Why More Families Are Affected

The fundamental reason behind this surge in trust registrations lies in what experts call “fiscal drag” – the phenomenon where tax thresholds remain frozen while incomes, property values, and other assets continue to rise. The inheritance tax nil-rate band has been stuck at £325,000 since 2009 and is scheduled to remain frozen until at least 2030. If this threshold had kept pace with inflation over the past fifteen years, it would now stand at approximately £500,000, meaning significantly fewer families would face inheritance tax bills. Instead, the static threshold combined with rising asset values has created a situation where more and more estates are being dragged into the inheritance tax system.

Property values, particularly in the UK’s housing market, have been a major driver of this trend. Many families who purchased homes decades ago have seen their properties appreciate substantially, sometimes transforming modest family homes into valuable assets that push estates over the inheritance tax threshold. Add to this the value of pensions, savings accounts, ISAs, and other investments, and you have a perfect storm where middle-income families find themselves facing substantial tax bills that their parents’ generation never had to consider. Looking ahead, the government expects to collect approximately £14.5 billion in inheritance tax by 2030-31, a figure that underscores just how many families will be affected by this tax in the coming years.

Recent and upcoming changes to government policies have further widened the inheritance tax net. Modifications to agricultural and business property relief mean that even some family farms and small businesses, which previously enjoyed substantial tax exemptions, may now face significant inheritance tax liabilities. These changes have created additional urgency for families to explore estate planning options like trusts that can help protect wealth accumulated over generations and ensure it benefits their intended heirs rather than going to the tax authorities.

Understanding Trusts: A Powerful Estate Planning Tool

For those unfamiliar with the concept, a trust is essentially a legal arrangement that allows one or more people (called trustees) to hold and manage assets or money on behalf of others (the beneficiaries). While the term “trust” might sound complex or something only relevant to the ultra-wealthy, they’re actually quite accessible and can serve a variety of practical purposes for ordinary families. People establish trusts for numerous reasons: to set aside funds for children or grandchildren, to ensure financial provision for a vulnerable family member, to manage someone’s affairs if they become unable to do so themselves, or to protect family assets for future generations.

A trust can hold virtually any type of asset imaginable. This includes straightforward items like cash and bank accounts, as well as more complex holdings like shares, investment products, land, and property. They can even hold personal valuables such as artwork, jewelry, vintage cars, or family heirlooms. The flexibility of what can be placed in trust makes them suitable for families with diverse types of wealth. Every trust involves three key parties: the settlor (the person who creates the trust and puts assets into it), the trustee (the person or people who manage the trust and its assets), and the beneficiary (the person or people who ultimately benefit from the trust).

The advantages of establishing a trust extend beyond just tax savings. Trusts provide a robust level of protection and control over valuable assets, ensuring they’re used according to the settlor’s wishes. They can protect the settlor’s interests and substantially reduce the likelihood of the estate being successfully challenged after their death – a consideration that becomes increasingly important in families with complex relationships or potential disputes. Trusts can also protect assets from creditors, divorce settlements, or beneficiaries who might not be capable of managing substantial sums responsibly. This makes them particularly valuable for parents concerned about children with addiction issues, mental health challenges, or simply a lack of financial maturity.

The Inheritance Tax Benefits of Trusts

When it comes to inheritance tax specifically, trusts offer potentially significant savings, though they require careful planning and a long-term perspective. The key benefit relates to the “seven-year rule.” If the person who establishes the trust (the settlor) lives for at least seven years after transferring assets into the trust, those assets will typically face no inheritance tax liability when the settlor dies. This can result in substantial savings for estates that would otherwise exceed the nil-rate band. Essentially, by placing assets in trust well before death, families can remove those assets from their estate for inheritance tax purposes, potentially saving their beneficiaries 40% of the value in tax that would otherwise be due.

However, it’s important to understand that trusts aren’t entirely tax-free. When the trust is initially established, if the total value of money and assets placed into it exceeds the nil-rate band (currently £325,000 for individuals or £650,000 for couples), an immediate tax charge of 20% may apply to the excess. Additionally, certain types of trusts face periodic charges every ten years, and there may be tax implications when assets are eventually distributed to beneficiaries. This means that while trusts can offer significant tax advantages, they need to be set up thoughtfully, ideally with professional advice, to ensure they achieve the intended tax savings and don’t create unexpected tax liabilities.

The tax benefits of trusts work best when they’re established as part of a comprehensive, long-term estate planning strategy. This requires families to think ahead and plan while they’re still in good health and well before they might need to pass on their wealth. For many people, this kind of forward planning doesn’t come naturally – we tend to avoid thinking about our own mortality or assume we have plenty of time to sort out such matters. However, the seven-year rule means that delaying can be costly. Those who establish trusts in their 50s or early 60s have a much better chance of surviving the seven-year period and securing the full tax benefits for their beneficiaries.

Expert Perspectives on the Trust Registration Boom

Marc Acheson, global wealth specialist at Utmost Wealth Solutions, described the increase in trust registrations as “entirely understandable” given the current tax landscape. He noted that with the inheritance tax nil-rate band having been frozen for more than fifteen years and successive policy changes widening the tax base, more families are finding themselves exposed to inheritance tax liabilities than ever before. These families are increasingly turning to trusts as a well-established, legally sound method of organizing succession planning and reducing long-term tax liabilities. His comments reflect a broader trend in the wealth management industry, where professionals are encouraging clients to take proactive steps rather than waiting until it’s too late to implement effective tax-saving strategies.

The surge in trust registrations also suggests that financial education around estate planning is improving. More families are becoming aware of the tools available to them and are willing to invest the time and resources required to set up proper structures. This represents a shift from previous generations, who often took a more passive approach to estate planning or relied solely on simple wills. Today’s families are more proactive, seeking out professional advice and implementing sophisticated strategies to preserve their wealth for future generations. This trend is likely to continue as inheritance tax thresholds remain frozen and more people recognize the substantial difference that proper planning can make to the amount their loved ones ultimately inherit.

Practical Considerations for Families Considering Trusts

For families considering whether a trust might be appropriate for their circumstances, there are several important factors to weigh. First, trusts do involve costs – legal fees to establish them properly, potential ongoing administration costs, and the fees that professional trustees may charge if you don’t want family members to take on this responsibility. These costs need to be balanced against the potential tax savings to determine whether a trust makes financial sense for your particular situation. Generally speaking, trusts become more cost-effective for larger estates where the inheritance tax savings will substantially exceed the setup and administration costs.

Second, establishing a trust means relinquishing direct control over the assets you place in it. While you can set terms that govern how the trust operates, once assets are in trust, they legally belong to the trust, not to you personally. This can feel uncomfortable for some people, but it’s also what provides the legal protection and tax advantages. It’s crucial to choose trustees you trust implicitly – people who understand your wishes, have good judgment, and will act in the beneficiaries’ best interests over what might be many years or even decades. Many families choose a combination of family members and professional advisors to serve as trustees, balancing personal knowledge with professional expertise. Whatever approach families choose, the growing use of trusts demonstrates that more people are taking inheritance tax seriously and are willing to plan ahead to protect the wealth they’ve worked so hard to build for the benefit of those they love.