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.

Update: The draft legislation was published on 21 July 2025 and is available here.

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 £1 million 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 £1 million to beneficiaries without an inheritance tax charge for longer than would otherwise be the case. Once the next 10 year anniversary is reached, the £1 million allowance will be in operation.

Update from draft legislation: Trusts created pre-budget, that did not hold Agricultural/Business property, will not be able to benefit from the £1 million allowance other than through the addition of further qualifying assets.

Transfers into trust up to 5 April 2026

Until 5 April 2026, it is possible for qualifying assets valued in excess of £1 million 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 £1 million 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.

Update from draft legislation: For transfers into trusts after 30 October 2024 and subsequently transferred out before 5 April 2026, the normal minimum holding period for agricultural/business property relief has been disapplied. This may be the government’s attempt to stop unexpected charges arising on taxpayers, but note that (under existing rules) if the trust is wound up and the transferor then dies within seven years of the transfer into trust, the original transfer of value will no longer qualify for any relief in their death estate because the transferor no longer holds the qualifying assets.

Transfers into trust after 6 April 2026

After 6 April 2026, the £1 million allowance will apply in full. Any valued transferred into trust in excess of the £1 million 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 £1.65 million would suffer an effective tax rate of 10%.

Anti-fragmentation

As each trust, whenever established, would in theory have its own £1 million allowance, legislation is being introduced to split the £1 million 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.

Update from draft legislation: HMRC are not looking to introduce relating multiple trusts, but the £1 million allowance will be allocated on a 'first come first serve' basis with pro-rating for same day additions.  

Special trusts

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

Update from draft legislation: The legislation confirms that each beneficiary of an 18-25 trust will benefit from their own trust allowance, subject to anti-avoidance provisions.

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.

Update from draft legislation: These expectations have now been confirmed.

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.

Update from the draft legislation: Many of the issues raised by Crowe have not been addressed but we continue to engage with consultations into the reform of the inheritance tax rules following the call for evidence by the Finance Bill Sub-Committee Call for Evidence - Committees - UK Parliament.

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.

You can also watch our Inheritance Tax and Succession Planning in 2025 webinar here.

Explore more about how we can help you protect, preserve, and pass on your wealth with confidence, explore Your Life Builder.