Setting up a Trust Fund to avoid inheritance tax

In the UK, inheritance tax (IHT) is applied to any portion of an estate that exceeds the threshold of £325,000, at a rate of 40% (unless the estate is being passed to a spouse, civil partner, or charity).

 As a quick example, if the total value of your estate (including property and other assets and investments) is worth £1,000,000, then £645,000 of that will be taxed at 40%, for a total IHT bill of £250,000.

 However, because assets placed into a trust are no longer considered the property of the settlor, after a period of seven years (provided the settlor does not have any interest in the trust) these assets will no longer be factored into the value of the settlor’s estate.

 It is important to note that different types of trust will be subject to different tax rules, and that they should not be looked on as simply a way to circumvent inheritance tax.

 The reality of estate taxation is much more complicated than that, which is why it is so important to involve an experienced solicitor in your estate planning as early as possible, particularly when trusts are involved.