More families are setting up trusts to avoid paying inheritance tax, figures from HMRC suggest.
Around 121,000 trusts were registered in the 2024-25 tax year, up from 115,000 the year before, taking the total to at least 835,000, the data analysed by Utmost Wealth Solutions shows.
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Trusts can offer potential savings on inheritance tax (more on how below), which more and more families face having to pay.
A freeze to the tax-free threshold, which has been fixed at £325,000 since 2009 and will remain there until 2030, has dragged more estates into paying inheritance tax.
If it had risen in line with inflation, the threshold would be around £500,000.
Increases in the value of property and other assets have also made more estates liable.
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By 2030-31, around £14.5bn is expected to be paid in inheritance tax.
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Marc Acheson, global wealth specialist at Utmost Wealth Solutions, said the increase in trust registrations was “entirely understandable”.
“With the inheritance tax nil-rate band frozen for more than 15 years and the tax base being widened through successive policy changes, more families are finding themselves exposed to inheritance tax and are turning to trusts as a well-established way of organising succession and mitigating long-term liabilities,” he said.
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What is a trust and how can it help with inheritance tax?
Basically, a trust is a legal arrangement where a person or group of people have control over assets or money.
They can be used for several reasons, including to set aside cash for children, grandchildren or other family members, or to take control of someone’s finances if they’re incapacitated.
They can hold any kind of asset, such as cash, land, shares, financial products or property like art, jewellery and cars.
They involve three main parties: the settlor, the trustee and the beneficiary.
There are many advantages of having a trust, including the level of protection and control they can provide over valuable assets.
They can protect the settlor’s interests and reduce the chance of being challenged after their death.
Trusts can also help you save on inheritance tax. If the settlor lives for at least seven years after putting assets to the fund, there will be no inheritance tax liability.
However, when setting up the trust, tax of 20% may be charged if the value of money and assets exceeds the nil-rate band (£325,000, or £650,000 for couples, until 2030).
