Taxation: Trust planning

Writing for Taxation magazine, BKL tax adviser Terry Jordan provides advice on the use of trusts both generally and to hold investment properties.


Advice is required on the use of trusts both generally and to hold investment properties. The availability of the inheritance tax nil-rate band on a rolling seven-year basis is confirmed, but a suggestion that investment properties should be transferred to a company and the shares into trust seems less advisable.

What is the maximum amount that can be put into a trust without an inheritance tax liability, assuming that the transferor survives for seven years after the transfer is made? I was told recently that, when a trust is set up, the maximum sum that can be transferred is the exempt amount, currently £325,000 per person.

For a married couple, it would therefore be £650,000. This implies that an inheritance tax exemption of up to £1.3m can be obtained, ie the standard exemption of £650,000 and a further £650,000 by setting up the trust.

I am also told that a different trust can be set up for investment properties where there would be no upper limit on inheritance tax. Basically, the investment properties are transferred into a limited company and a trust is then established to own the shares of the company. There are, apparently, a few conditions that must
be met.

Have any readers heard of such a trust and arrangements and, if so, how credible are they?

Query 18,182 – Seeker

Terry ‘Lacuna’ Jordan, BKL

After Labour’s changes to the inheritance tax trust regime, nearly all lifetime transfers to trust made on or after 22 March 2006 are immediately chargeable (the exception being trusts for disabled people, transfers to whom are potentially exempt transfers).

Accordingly, Seeker is correct that the maximum tax-free amount for a married couple would be £650,000. (Pedantically, if they also each have two years’ annual exemptions available the maximum would be £662,000.)

If the couple survive for the seven-year period, they will regain their nil-rate bands intact and could repeat the process every seven years. However, if they die before seven years have elapsed there would on current figures be no nil-rate band available to the value of their estates on death.

The advice Seeker has been given on investment properties appears to be flawed. If the shares are owned by the owner of the investment properties there would arguably be no loss to his or her estate on the transfer to the company, but the capital gains tax and stamp duty land tax implications would also have to be considered. The subsequent transfer of the shares to the trust would be immediately chargeable for inheritance tax purposes as above.

For completeness, clients might consider investing in assets that would benefit from business property relief once owned for two years, eg a portfolio of trading companies on the alternative investment market (AIM), and then transferring those shares to trust once they benefit from 100% business property relief.

Another point to bear in mind is that, if the client has sufficient surplus income, the transfers to trust will be immediately exempt provided there is a demonstrable pattern of giving or the commitment to give regularly can be evidenced at inception.


This article is also available on the Taxation website.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


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