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Inheritance Tax Planning Trusts in 2022

Inheritance tax planning in the UK is done to avoid paying more inheritance tax. One of the things you can do is plan trusts. 

What are Inheritance Tax Planning Trusts?

Trusts are legal instruments that you can use to plan your estate and taxes after death. They help you to avoid taxes, protect assets, and give you flexibility in managing your finances. 

The person who establishes trust is called a settlor. If you, your partner, and your minor children can’t benefit from the trust, the asset is no longer considered part of your estate. The trust belongs to your trustees and beneficiaries.

This only works if you live beyond 7 years after setting up the trust. If you pass away within 7 years, your estate will have to pay the full 40% tax on the trust. 

Inheritance Tax Planning

Inheritance tax planning is done by evaluating assets, debts, and liabilities accumulated over one’s lifetime. There’s a nil rate band set at £325,000, above which your estate is not charged any tax. 

You can increase the nil rate band by adding the residence nil band to it. If you leave your house to your heirs, you do not have to pay any inheritance tax on it. The threshold for this is £175,000.

Furthermore, you can save on inheritance tax by giving away more than 10% of your estate to charity. The rest of your estate will attract inheritance tax at 36%, instead of 40%. 

These are just a few ways. Estate planning can help you reduce taxes on your estate. 

Types of trusts that help avoid tax

You can set up many types of trusts but only a few will be exempt from inheritance tax. It is best to take the help of inheritance tax planners to set up trusts during your lifetime. 

Your options for trusts are – 

Bare trusts

In this trust, one holds the trust on behalf of another. This is the most basic type of trust. 

Discretionary trust

 You transfer all your savings and assets to the trust and the trustees decide how to distribute the assets after your death. They will take your wishes into account and distribute the contents of the trust to the beneficiaries. 

Discounted gift trust

 These trusts are used for insurance bonds. You can get up to 5% income from this trust each year. 

Interest in possession trust 

The beneficiary enjoys the interest on the trust when it is generated. You have to pay the 10-year IHT charge on this trust. You may also have to pay income tax and capital gains tax on the money you make on this investment. 

Mixed trust

This combines different types of trusts and are specialised according to your needs. 

Trusts for a vulnerable person

These trusts help to manage the funds of a beneficiary who can’t take care of themselves. There will be less liability on this trust. 

Loan trust

In this trust, you loan your assets to the trust. They still belong to you and are part of your estate. But if you earn investments on your assets, they stay in the loan trust. When the tax man charges you inheritance tax, this investment money is not included in your estate.

Setting up trusts can be costly if not done the right way, the first time. Ensure that you start on the right foot the first time if your estate is worth more than the nil-rate threshold.  

Call us for a free 60-minute consultation.

How to avoid inheritance tax with a trust

Trusts are not completely tax-free because they have different tax treatments as compared to the rest of your estate. If you use trusts with other legal instruments to plan your inheritance tax, you could avoid paying considerable tax. 

Trusts can be tricky to set up. Take the help of a trusted inheritance tax planner to calculate your taxes


Setting up a trust allows you to have more control over your assets as compared to gifts. You can choose what happens to your assets in the trust. 

You can even choose your beneficiaries, and be the trustee till you’re alive. You can write a will about what happens to your trusts after you pass away. 

No other form of saving tax gives you control over your assets while you’re still alive. 


Always plan your inheritance tax with the help of estate planning experts. You could miss out on ways to save more tax. While filling out the form and calculating your inheritance tax are easy, saving tax is not. There are a lot of little ways you could save on tax. 

Contact us to help you with setting up a trust that would suit you the best.


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