Key Inheritance Tax Structures

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Loan Trusts

• You can loan capital into trust and the growth is immediately outside of your estate from day one and belongs to the beneficiaries.
• The original capital remains inside your estate for IHT and still belongs to you which you can call on at any time.
• These structures are effective for those who want to limit their IHT liability getting worse but not yet ready to gift funds outright.

Flexible Lifestyle Trust

• It’s a gift into a trust which is completely outside of your estate after 7 years.
• You can still retain access to the original capital at set anniversary dates.
• Example, you gift £300,000 and request £30,000 a year over 10 years. At each yearly anniversary you can decide if you want to take the £30,000 or not. If not, it remains in the trust and rolls over to the following year, where you then have a further choice of taking up to £60,000. If you do then this can be paid out, albeit this will then be     inside of your estate for IHT.
• This is ideal for those who are happy gifting some capital away but like the safety net of knowing they can access some if needed.
• Unlike a ‘Loan Trust’ you cannot request the full capital back at any point, these are set at policy anniversary dates.

Gifting into a Discretionary Trust

• Gifts to trust can be beneficial for those who survive 7 years when the capital is then outside of the estate.
• The trustees control the asset and can distribute elements to the beneficiaries as they see fit.
• Gifting is usually capped to £325,000 every 7 years, otherwise any excess above this incurs a 20% entry charge.
• This is ideal for those who are happy giving up access to the capital but want control on how the funds are used. It can also be beneficial to help protect against any future divorce on the beneficiaries.

Discounted Gift Trusts

• You gift capital into trust in return for a monthly income fixed at outset, up to 5% per annum.
• You receive an immediate discount on Inheritance Tax, which the full amount outside of your estate after 7 years.
• Example, a recent client of mind gifted £150,000 into this trust. He was given a discount of £62,128, meaning this is outside of the estate straight away, saving £24,851 in tax.
• The remaining £87,872 will be outside of the estate after 7 years.
• He retains an income of £7,500 per annum, payable monthly.
• This is designed for individuals who have an IHT liability and require an income, with no major capital expenditures on the horizon.
• If the income isn’t spent it stays in the estate and is subject to IHT, hence the importance of needing an income which will be spent.

Nil Rate Band Will Trust 

• This may require an amendment to the Will.
• Upon first death, assets up to the value of the nil rate band (£325,000) are placed into a discretionary trust and the rest are passed to the surviving spouse.
• If structured properly, the surviving spouse can retain a life interest in the £325,000. This may include continued use of the property or an income generated from the     funds.
• This can help with asset protection and shields the amount from future care fees.
• It can benefit those subject to tapering rules by reducing the joint estate on 2^nd death, and reinstating part / all of the Resident Nil Rate Band.
• A qualified solicitor would need to advise on this.

Business Property Relief Schemes (BPR)

• Investments in BPR schemes are outside of your estate after 2 years,  provided they are held at the time of death.
• This structure tends to suit those who have a higher degree of risk because the underlying investments are held in smaller companies.
• It can also be more appropriate for someone who is older with less mortality, with a tendency to consider when someone is in their 80’s.

Regular gifting out of normal income and expenditure

• If you have excess income you can gift this without the 7 year rule applying.
• This cannot be used from capital or savings interest and must be a genuine source of income.
• Pensions can be used for this which is a good way to extract funds up to the basic rate tax and gift the excess into trust or directly to your beneficiaries.
• Using pension as a source of excess income is a consideration for now and April 2027.
• Example, if you draw £40,000 a year from the pension and only spend £35,000, you can gift £5,000 each year.
• It’s advisable to keep a record of your income and expenditure which can be documented using an IHT form 403.

Life Insurance in Trust

• This can be a beneficial structure to help cover part or all of the liability.
• Whilst the estate is growing it’s often worth using some of the interest/ growth to fund a life policy which can then help cover any potential liability.

Family Investment Companies (FICs)

• Usually a parent or grandparent will gift assets into a  company structure, usually cash, property or investments in exchange for shares.
• Shares can then be gifted to family members which are exempt from IHT after 7 years.
• Unlike trusts, there’s no restriction or entry tax charge on gifts in excess of £325,000.
• Original founders can retain control through special share classes / preferences shares.
• Typically, the structure allows investment growth to be outside of the estate from day one, with gifted shares exempt after 7 years.
• This is appropriate for those with typically £1m to move into the company structure, due to setup and ongoing costs to manage it.
• Shareholder agreements and bespoke articles of association can restrict share ownership to bloodline family members, protecting assets from being split in divorce settlements.
• Specialist Tax Advice is needed to ensure the structure is set up correctly, with consideration to any capital gains tax on property being moved into the company.

Small Gift & Annual Gift Allowance

• You can each give £250 to as many individuals as you like which will be outside of your estate immediately.
• You can also gift £3,000 each year which is also outside of your estate. If you haven’t used this in a previous year there’s potential to gift £6,000 per individual.

Please note that the Financial Conduct Authority do not regulate will writing, tax planning and trusts.

Will writing is not part of the 2plan Wealth Management Ltd offering however, we can introduce you to a trusted professional we work closely with.2plan Wealth Management Ltd accept no responsibility for this aspect of our business.

Approved by 2plan wealth management Ltd on 28/08/25

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