3 reasons to think twice about putting your home into trust to reduce Inheritance Tax

17 April 2026

Inheritance Tax (IHT) is affecting an increasing number of families in the UK.

Indeed, MoneyWeek reports that HMRC collected £7.1 billion in IHT receipts between April 2025 and January 2026 – £130 million more than during the same period in the previous tax year.

Although fewer than 5% of estates pay IHT, frozen thresholds and higher value assets mean this upward trend is likely to continue for the foreseeable future. Not to mention the fact that, from April 2027, pension wealth will also be included in IHT calculations.

Read more: How proposed Inheritance Tax rule changes on pension wealth could affect your estate plan

Inheritance Tax in a nutshell

The main IHT nil-rate band has been frozen at £325,000 since April 2009. Meanwhile, the £175,000 residence nil-rate band, which allows you to pass your home to your children, is also frozen. Both thresholds are expected to remain at their current levels until April 2031.

Any part of your estate above these thresholds is liable to IHT at 40%.

However, estates worth more than £2 million face a tapered reduction of the £175,000 residence nil-rate band. For every £2 that the value of your estate exceeds this threshold, the residence nil-rate band will reduce by £1.

In effect, if your estate is worth more than £2.35 million, the residence nil-rate band dwindles to nothing.

All this to say, you may be concerned about how much of your estate could be eroded by IHT when the time comes to transfer assets to your beneficiaries.

From utilising gift allowances to setting up trusts, we’re here to help you structure your estate in the most tax-efficient way to ensure more of your hard-earned wealth passes to the people you care about.

One option that often crops up in conversations is the idea of placing the family home into trust. Keep reading to find out why this may not be the solution you first thought.

A trust is a legal arrangement used to transfer ownership of an asset

You can put money, investments, or property into a trust. For example, you may decide to put money into trust for your grandchildren and appoint family members or professionals as the trustees to manage it until the children reach a certain age.

There are a variety of different types of trusts that can be useful when estate planning or managing IHT. However, they can also be complex, and there are stringent legal and tax rules that you must adhere to.

It’s worth noting that the Financial Conduct Authority does not regulate estate planning or trusts. And once a trust is set up and assets are transferred, it can be difficult – in some cases, impossible – to reverse the decision.

As such, it’s not a decision to be made lightly, and we recommend you get in touch for help and advice if this is something you’d like to explore further.

3 reasons putting your home into a trust may not be in your best interests

While it is possible to place your main residence into trust, doing so means transferring legal ownership to your chosen trustees. This comes with several risks and downsides.

1. You cede control

Since putting your home into trust means giving legal ownership to someone else, you cannot sell, refinance, or gift the property without approval from the trustees. If your circumstances changed, this could create problems.

On top of this, you may find extra costs arise. Trustees must keep accounts and also complete tax returns. Over time, legal and admin fees could add up and cost you more than anticipated, and could become more complex than you’d accounted for.

2. Tax implications still exist

Putting your home into trust doesn’t automatically protect it from tax charges – and it’s not only IHT that you need to consider.

If the value of the share of the property you put into trust is worth more than £325,000, you may incur an immediate 20% IHT charge.

Once the home is in trust, you could still be liable for:

IHT for you

Putting your home into a trust is a chargeable lifetime transfer, and is treated as a gift. However, it only becomes entirely free of IHT if you survive seven years after making the transfer.

If you die within seven years, the property’s value (at the time of transfer) is added back into your estate for IHT calculations, and could still lead to a tax charge.

For this rule to apply, once you set up the trust, you cannot retain any benefit in your home. To continue to live in your home, you must pay an appropriate amount of rent – comparable to open market rental prices in the local area – to the trust.

Remember: taper relief only applies to gifts in excess of the nil-rate band. If no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

IHT for the trust

Transferring your home to a discretionary trust may also lead to the loss of the residence nil-rate band of £175,000 (2026/27).

So, there’s no IHT benefit from using the trust. Plus, since the property will be in trust when you die, your executors will be unable to use its value to help settle the IHT bill.

Capital Gains Tax (“CGT”)

Most homeowners qualify for Capital Gains Tax (CGT) relief for their main home. Main Residence Capital Gains Relief exempts you from CGT if the property has increased in value since you purchased it. However, if you don’t transfer the property into trust with care, the trust may lose the relief, resulting in a potentially costly CGT bill.

Income Tax for the trust

Due to ongoing administration costs, you may need to add cash to the trust. Holding more than £500 in cash in the trust may make it liable for Income Tax at 40%.

Ongoing tax charges

Discretionary trusts are also subject to 10‑yearly tax charges (up to 6% of the value). And exit charges will apply when assets leave the trust.

Please note that the above is based on our understanding of HMRC legislation, which is subject to change. Please don’t act on anything you might read in this article. Instead, get in touch with your financial planner who will advise you, taking all your circumstances into account.

3. Your home isn’t protected if you go into care

If you require care in later life, your local authority will conduct a means test to see if you’re eligible for funding.

While removing your property from your legal ownership decreases your capital, your local authority may see your decision to put your home into trust as a deliberate attempt to deprive yourself of the value of your home.

As a result, your home may still be taken into account when assessing your ability to pay for care.

Proceed with caution

Trusts can play an important role in estate planning and, in some cases, can be helpful in reducing a potential IHT charge. However, there’s a lot to consider and we’d recommend you seek expert advice before you take any action.

We can help you understand which assets to place in trust to meet your goals and how doing so may impact your wealth. Working with a solicitor could also help you avoid potentially costly mistakes.

Thresholds, percentage rates, and tax legislation may change in Finance Acts and bases of, and reliefs from, taxation are subject to change and their value depends on an individual’s personal circumstances.

Get in touch

When you’ve spent a lifetime building wealth, the last thing you want is for a large chunk to disappear in IHT. We can provide advice tailored to your circumstances to help you create an estate plan that aligns with your wishes, including setting up a trust if it’s appropriate.

Email [email protected] or call 0161 8080200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.