In this article, Ammad Khan, our Senior Personal Tax Manager, looks at why inheritance tax pressures, combined with a long-frozen tax-free threshold, are driving renewed interest in trusts – and why they continue to play an important role in family wealth planning.
Frozen thresholds pull families into the inheritance tax net
This trend in rising trust registrations reflects growing concern over the frozen inheritance tax threshold, which has remained at £325,000 since 2009. With property values and asset prices increasing over time, more estates are being pulled into the IHT net.
If the threshold had kept pace with inflation, it would now sit at around £500,000, significantly reducing the number of families facing a tax bill.
With further tax policy changes expected in the coming years, trusts are increasingly viewed as a practical and flexible way to manage wealth and plan for the future.
Why inheritance tax is driving renewed interest in trusts
Inheritance tax is charged at 40% on the value of an estate above the tax-free allowance. For families whose wealth is tied up in property, even modest house price growth can push estates beyond the threshold.
As a result, many families are seeking legitimate ways to:
- Reduce potential inheritance tax liabilities
- Protect assets for future generations
- Maintain control over how and when wealth is passed on
Trusts have long played a role in estate planning, but current tax conditions have made them more relevant than ever.
Reasons trusts remain popular with families
1. Mitigating inheritance tax exposure
One of the primary reasons families use trusts is to help manage inheritance tax liabilities. Assets placed into certain types of trust may fall outside an individual’s estate after a set period, potentially reducing the amount of tax payable on death.
While trusts are subject to their own tax rules and charges, many families see them as a valuable long-term planning tool when used appropriately and with professional advice.
2. Greater control over how wealth is distributed
Trusts allow individuals to specify how, when and to whom assets are passed on. This can be particularly appealing for families who want to:
- Provide for children or grandchildren at specific life stages
- Protect vulnerable beneficiaries
- Prevent assets being misused or lost through divorce or debt
Rather than passing wealth outright, trusts offer structure and oversight, often through appointed trustees.
3. Protecting family assets
Asset protection is another key driver behind the continued popularity of trusts. By placing assets into a trust, families may be able to shield them from certain risks, such as:
- Relationship breakdowns
- Financial mismanagement
- Claims against beneficiaries
This is especially relevant for business owners and families with significant property or investment portfolios.
4. Supporting long-term family planning
Trusts are not only about tax. Many families use them as part of a broader intergenerational planning strategy, helping to preserve wealth over decades rather than passing it down in one lump sum.
This approach can encourage responsible financial management and ensure that family wealth supports multiple generations rather than being quickly eroded.
5. Preparing for future tax changes
With ongoing speculation around inheritance tax reform and wider changes to wealth taxation, families are increasingly keen to plan ahead rather than react later. Trusts provide flexibility, allowing arrangements to adapt as personal circumstances or tax rules evolve.
The rise in trust registrations suggests that many families are taking proactive steps now, rather than waiting for potential policy shifts to take effect.
Looking ahead
The increase in trust registrations underscores a broader reality: inheritance tax is no longer a concern only for the very wealthy.
As thresholds remain frozen and asset values rise, more families are being drawn into the tax system.
Trusts continue to offer a well-established and adaptable solution for families seeking control, protection and long-term planning in an increasingly complex tax environment. With IHT pressures unlikely to ease soon, their popularity shows little sign of slowing.
Trusts – we can help
Setting up a trust can be an effective part of estate and inheritance tax planning, but it isn’t a one-size-fits-all solution. The rules are complex, and the right structure depends on your personal circumstances, family goals and long-term plans.
Our experienced tax advisers can help you decide whether a trust is the right option for you. We take the time to understand your situation, explain the potential tax implications in clear terms, and recommend an approach that aligns with your objectives.
If a trust is appropriate, we can handle the entire process on your behalf — from selecting the most suitable type of trust and managing the initial set-up, to dealing with ongoing compliance, reporting and HMRC requirements. This ensures everything is structured correctly from the outset and continues to run smoothly over time.
Whether you are looking to reduce inheritance tax exposure, protect family assets or plan for future generations, our team is here to provide clear, practical guidance at every stage.
Ammad provides personal taxation planning, advisory and compliance services.
