Inheritance Tax

This note considers the impact on succession planning with trusts following HMRC’s consultation which closed on 23 April 2025. The final details of the operation of the rules and associated legislation has yet to be published and is unlikely to be available until the autumn.

The key features of the consultation revolved around the following issues

• How trusts created before the 30 October 2024 budget should be treated.
• How trusts should be treated up to 5 April 2026 before the implementation of the changes. 
• How trusts should be treated from 6 April 2026.

Some background to trusts and how they are useful in succession planning can be found in our article here.

In principle each trust and individual should have their own £1m allowance which refreshes every seven years on a rolling basis (like the nil rate band). The allowance will not be transferable to a spouse. Further details of the trust proposals are below:

Trusts and transfers into trust before 30 October 2024

For trusts created before budget day, the trust will remain outside the “new rules” until the first 10 year anniversary following 6 April 2026. In certain circumstances this presents an opportunity for those trusts to distribute assets valued in excess of £1m to beneficiaries without an inheritance tax charge for longer than would otherwise be the case. Once the next 10 year anniversary is reached, the £1m allowance will be in operation.

Transfers into trust up to 5 April 2026

Until 5 April 2026, it is possible for qualifying assets valued in excess of £1m to be transferred into a trust without an up-front inheritance tax charge. This represents a small window of opportunity to transfer significant qualifying assets into a trust arrangement, allowing the transferor to retain control over the assets while they are protected for the wider family.

In the same way as a direct transfer to the next generation (i.e. not involving a trust), if the transferor were to die after 6 April 2026, but before seven years have passed since the date of the gift, there could still be an inheritance tax charge. This is because the lifetime transfer will become chargeable in the transferors death estate subject to the £1m allowance. Taper relief could still apply to reduce the rate of tax on the transfer if the transferor has survived for at least three years.

Transfers into trust after 6 April 2026

After 6 April 2026, the £1m allowance will apply in full. Any valued transferred into trust in excess of the £1m will only benefit from 50% relief and, unless covered by other reliefs/exemptions, will immediately be chargeable to inheritance tax at 20%. Therefore, assuming the full £1m allowance and nil rate band of £325,000 is available, any transfer of qualifying assets valued in excess of £1.65m would suffer an effective tax rate of 10%.

Anti-fragmentation

As each trust, whenever established, would in theory have its own £1m allowance, legislation is being introduced to split the £1m allowance across all trusts created by the same settlor after 30 October 2024. HMRC is also considering relating multiple trusts to each other for IHT valuation purposes.

Special trusts

There are some reliefs proposed for ‘special trusts’ such as age 18-25 trusts for bereaved young people, which will allow the £1m allowance to renew for each successive beneficiary to ensure the eldest does not receive the whole benefit.

Interest-free instalments

As with IHT payable on qualifying business and agricultural property relief assets in an estate, it is expected that trustees will benefit from the ability to pay in 10 equal non-interest-bearing instalments from the normal due date for payment of the tax. This will be the case subject to the asset being disposed of, at which point any outstanding IHT becomes due.

Crowe’s response to the consultation

Crowe responded to the consultation highlighting various areas of unfairness or where there was a lack of clarity. Other than expressing our concern of the impact of charging IHT on qualifying businesses in general, our challenges surrounded the practicality of the application of the anti-fragmentation rules, and inconsistent treatment between trusts solely with qualifying assets, and those with a mixture of qualifying and non-qualifying assets. We hope that HMRC will address the points we raised before any changes are implemented.

Conclusion

Although the final rules are not yet certain, any individual or trustee with qualifying assets that may be impacted by the changes should be reviewing their position before their implementation on 6 April 2026.

When it comes to planning with capital, advice and legal implementation of changes can take time, so it is better to address the issues sooner rather than later. Get in touch with your usual Crowe contact to discuss further.