Nil Rate Band Trusts Explained – Are They Still Worth Including in Your Will?

What Is the Nil-Rate Band?

The Nil Rate Band (NRB) is the amount you can pass to beneficiaries tax-free upon death. It currently stands at £325,000 per individual, frozen since 2009, and now confirmed by the Autumn Budget 2024 to remain unchanged until 2030. This freeze contributes to “fiscal drag,” where rising asset values push more estates into IHT liability.

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The Traditional Role of Nil-Rate Band Trusts

Historically, Nil Rate Band Discretionary Trusts (NRBDTs) were used to ensure the full use of both spouses’ NRBs:

1. On the first death, up to £325,000 was placed into the trust.

2. The surviving spouse could benefit during life, but those assets stayed outside their estate, preserving both NRBs for the second death.

However, the 2007 introduction of the Transferable Nil Rate Band changed the landscape:

1. Now, any unused NRB from the first spouse can be transferred to the surviving spouse, effectively permitting up to £650,000 (2 × £325,000) to pass tax-free .
2. This development made NRBDTs less commonly needed for straightforward married couples  

So, Are NRBDTs Still Useful?

Yes, under certain circumstances. Here are key scenarios where they still play an important role:

1. Unmarriedor Co-habiting Couples

They cannot benefit from spousal exemptions or NRB transfer. Establishing an NRBDT allows the surviving partner to benefit from an additional NRB:

- The trust shields assets from being counted in their estate, preventing inheritance tax at the second death. 

2. Widowed Individuals Who Remarry

A testator previously widowed who remarries can preserve the NRB from both former and current spouses:

- Leaving the NRB amount in to a trust avoids wasting additional allowances and enables multiple NRBs to apply across multiple marriages.

3. Complex Family Structures

For blended families or where children from previous marriages exist:

- Trusts can ensure children are not inadvertently disinherited, while still providing for the surviving spouse.

4. Residence Nil-Rate Band (RNRB) Taper Prevention

The RNRB—an extra £175,000 allowance for passing a primary residence to direct descendants—is also frozen until 2030. If the surviving spouse’s estate risks exceeding the £2 million RNRB taper threshold:

- Directing assets into an NRBDT can keep the estate below the threshold, preserving full RNRB benefits 

The Downsides of NRBDTs

While NRBDTs offer flexibility, they come with trade-offs:

1. Subject to periodic (every 10 years) and exit IHT charges under the trusts regime—typically up to 6% on values exceeding the NRB.
2. Administrative complexity and ongoing reporting obligations.
3. In many regular married couple scenarios, having the trust may simply be unnecessary and may still be unwound (within two years of death) to revert to simpler estate handling.

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Final Thought

Nil Rate Band Discretionary Trusts remain a valuable tool—not for conventional married couples, but for those with complex family structures, multiple marriages, or who face potential loss of RNRB benefits. Ultimately, deciding whether to include one in your Will should be based on your personal circumstances, with expert advice.

Priority Wealth Planning offers independent, bespoke advice—reach out for a complimentary consultation to explore your best estate planning route.

Any Advice on amending Wills should be done by a qualified solicitor, where we can introduce you to a trusted professional we work closely with.

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.

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