New figures from HMRC indicate a notable rise in the number of families establishing trusts as a strategic measure to shield their estates from inheritance tax. The data, meticulously analysed by Utmost Wealth Solutions, shows that approximately 121,000 trusts were registered during the 2024-25 tax year. This marks an increase from the 115,000 recorded in the previous year, bringing the total number of active trusts to at least 835,000 across the United Kingdom.
Driving Forces Behind the Trust Trend
The surge in trust registrations is largely attributed to the ongoing freeze of the inheritance tax nil-rate band, which has remained steadfast at £325,000 since 2009 and is set to continue until 2030. Had this threshold been adjusted in accordance with inflation, it would now stand at around £500,000. Consequently, the static limit has drawn a growing number of estates into the inheritance tax net, compelling families to explore proactive financial planning options.
Compounding this issue is the substantial appreciation in property values and other assets over recent years, which has further expanded the pool of estates liable for inheritance tax. Additionally, impending modifications to government policies concerning agricultural and business property relief are anticipated to exacerbate the situation, potentially forcing even more individuals to confront significant tax obligations.
Expert Insights on the Escalating Figures
Marc Acheson, a global wealth specialist at Utmost Wealth Solutions, commented on the upward trajectory of trust registrations, describing it as "entirely understandable" given the current fiscal landscape. He elaborated, "With the inheritance tax nil-rate band frozen for more than 15 years and the tax base being widened through successive policy changes, more families are finding themselves exposed to inheritance tax and are turning to trusts as a well-established way of organising succession and mitigating long-term liabilities."
Projections suggest that by the 2030-31 fiscal year, inheritance tax revenues could reach an astonishing £14.5 billion, underscoring the critical importance of effective estate planning for UK households.
Understanding Trusts and Their Tax Advantages
A trust is fundamentally a legal arrangement wherein control over assets or monetary resources is vested in a person or group of people. These structures serve multiple purposes, such as earmarking funds for children, grandchildren, or other family members, or managing the finances of individuals who are incapacitated.
Trusts are versatile and can hold a wide array of assets, including cash, land, shares, financial products, and tangible property like art, jewellery, and vehicles. The arrangement typically involves three key parties: the settlor, who establishes the trust; the trustee, who manages the assets; and the beneficiary, who ultimately benefits from the trust.
Key Benefits and Tax Implications
The advantages of establishing a trust are manifold. They offer a robust level of protection and control over valuable assets, safeguarding the settlor's interests and reducing the likelihood of legal challenges following their death. From a taxation perspective, trusts can facilitate substantial savings on inheritance tax. Specifically, if the settlor survives for at least seven years after transferring assets into the trust, those assets may incur no inheritance tax liability whatsoever.
However, it is crucial to note that setting up a trust may trigger an immediate tax charge of 20% if the total value of the assets exceeds the nil-rate band. For individuals, this threshold is £325,000, while couples can benefit from a combined allowance of £650,000, both of which are fixed until 2030.
As inheritance tax continues to impact a broader segment of the population, the strategic use of trusts is becoming an increasingly vital component of family wealth management and succession planning in the UK.
