How to avoid Inheritance tax using trusts in 2024

Unlocking Financial Freedom: Navigating Inheritance Tax with Trusts in 2024


In the ever-evolving landscape of financial planning, individuals and families in the United Kingdom are increasingly turning to trusts as a strategic tool to mitigate the impact of inheritance tax. In this comprehensive guide, we will delve into the intricacies of inheritance tax planning and explore how establishing a trust can be a powerful solution to safeguard your assets and ensure a smart transition for your loved ones.

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Understanding Inheritance Tax:

In the UK, inheritance tax is a levy imposed on the estate of a deceased person. While it is an integral part of the tax system, it can often lead to a substantial reduction in the value of the inheritance passed on to beneficiaries. The current inheritance tax threshold is £325,000, and anything above this amount is taxed at a rate of 40%. For high-net-worth individuals, this can translate into a significant financial burden for their heirs.

The Role of Trusts when considering Inheritance Tax Planning:

A trust is a legal arrangement that allows individuals (known as settlors) to transfer assets to a separate entity (the trust) for the benefit of specific individuals or purposes (the beneficiaries). By establishing a trust, individuals can exercise greater control over the distribution of their assets while simultaneously reducing their exposure to inheritance tax.

Key Strategies to Avoid Inheritance Tax with a Trust:

  1. Lifetime Gifts and Potentially Exempt Transfers (PETs): One effective strategy is to make lifetime gifts, transferring assets into a trust during your lifetime. While these transfers may be subject to inheritance tax, they can fall outside the taxable estate if the settlor survives for at least seven years after making the gift. These are known as Potentially Exempt Transfers (PETs), and they become completely tax-free if the settlor survives beyond the seven-year period.
  2. Establishing Discretionary Trusts: Discretionary trusts offer flexibility in distributing assets among a class of beneficiaries, providing the trustees with the authority to decide when and how to distribute the assets. By placing assets in a discretionary trust, settlors can reduce the taxable value of their estate, as the assets technically no longer belong to them.
  3. Using Business Property Relief (BPR) and Agricultural Property Relief (APR): Certain types of assets, such as qualifying business assets and agricultural property, may be eligible for relief from inheritance tax. Placing these assets in a trust can help maximize the relief available and minimize the overall tax liability.
  4. Life Insurance Policies and Trusts: Settlors can also consider using life insurance policies as a means to fund the trust. By assigning the policy to the trust, the proceeds can be distributed tax-free to beneficiaries, providing an additional layer of financial security.


In conclusion, navigating the complexities of inheritance tax planning in the UK requires a strategic approach, and establishing a trust can be a powerful tool in this endeavour. By utilizing the various strategies outlined above, individuals and families can proactively protect their wealth, ensure the financial well-being of their loved ones, and ultimately leave a lasting legacy without the burden of excessive taxation. As with any financial decision, it is advisable to seek professional advice to tailor a plan that aligns with your specific circumstances and goals.

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