I've been advised to use investment trusts to reduce my fairly large IHT burden

12 June 2023

Question by joe


I've been advised to use investment trusts to reduce my fairly large IHT burden that will be due in some years to come (I'm 74 at present) I understand the standard IHT mechanisms such as gifting and am considering opening a discretionary trust but this option seems very expensive. My son is 24 and financially incapable of handling large sums of inheritance money either I or my wife leave him after we pass. Hence the question.

I hope you can help

Thank you

Jackie & Joe

Answered by Annabel Lumsden

Hi Jackie & Joe

This is certainly a complex area of planning, not least, because of the emotions that can be involved. I hope the below offers some general guidance and I would always recommend taking bespoke financial advice before making any decisions.

If you consider gifting money into trust during your lifetime, there are a few important aspects to consider. The first is that, once the money moves into the trust, you no longer have access to the capital so you need to be sure you won't need the funds in your lifetime. You will need to appoint Trustees who would take care of the money for the best interests of your beneficiary and they would be the ones to distribute the money to your son as needed. For any monies gifted into trust, you would need to survive the gift by 7 years to move the monies fully outside of your estate for IHT purposes. You can find more information about the nuances of this here: https://www.gov.uk/inheritance-tax/gifts.

If you use a Solicitor to establish the trust, they would usually charge a fixed fee for this and you would then look at options to hold the money within the trust, which could incur further costs. There are usually options through a financial adviser to establish the trust at the time of making the appropriate investment and for this to be done at no additional cost to you. Trusts can be very effective in reducing liability to IHT, which, if successful, would save your beneficiaries the 40% IHT burden on the money moved outside of your estate. So whilst the set up costs can seem large, the impact the correct planning can have, could save much more money in the future.

There are many options within this area of planning and the correct course of action will depend on your circumstances, the size of your estate and your ultimate aims for the money in your lifetime and as this moves to the next generation. It's really important to talk through the options with an adviser so you have the specifics for you but I hope that the above is helpful.

Best wishes


Answered by

Annabel Lumsden

Financial Adviser

I am focussed on empowering clients to achieve their goals, whatever they may be. I want to make people feel at ease, some are terrified to approach a financial adviser, so I like to take things at each individual’s pace.