Why trusts are a powerful estate planning tool for high net worth individuals

Keeping an up-to-date estate plan gives you control over how and when your assets are passed on to your chosen beneficiaries. This collection of legal documents (which may contain your will, trusts, lasting powers of attorney and so on) is also a vital tool for mitigating inheritance tax (IHT) so your loved ones receive more of the wealth you’ve worked hard to build and preserve.

The most recent government figures reveal that IHT receipts for April 2026 to August 2026 were £3.8 billion, which is £0.1 billion higher than the same period last year. Further increases are expected when most unused pensions are brought within the scope of IHT from April 2027.

As such, trusts are becoming an increasingly important estate planning tool for high net worth individuals (HNWIs).

A trust is a legal arrangement that allows assets to be managed on behalf of chosen beneficiaries according to your wishes. Used carefully, they could help you reduce a potential IHT bill for your family, as well as giving you greater control over your legacy. According to HM Revenue & Customs, as of 29 August 2025, there were around 835,000 trusts and estates registered with the Trust Registration Service in the UK.

Keep reading to find out why IHT planning is crucial for HNWIs and how trusts can help. Then, discover four important considerations when setting up a trust.

Why careful inheritance tax planning matters more than ever for high net worth families

IHT receipts have increased every year since 2020/21, reaching a record £8.5 billion in the 2025/26 tax year. At the same time, the government has frozen the main IHT thresholds (the nil-rate band and the residence nil-rate band) until April 2031, resulting in more estates being pulled into the IHT net as asset values rise.

What’s more, from 6 April 2027, the current IHT exemption on most unused pensions and death benefits will be removed. Some exemptions will remain, including:

• Anything left to your spouse or civil partner
• Gifts to qualifying registered charities and community amateur sports clubs
• Certain death-in-service benefits
• Defined benefit pensions

However, this reform is likely to have significant implications for HNWIs whose estate plans centre on using pensions as a tax-efficient way to pass on wealth to the next generation.

The new rules also introduce the possibility of your nominated beneficiary facing ‘double taxation’ on pension wealth they inherit from you.

If you die at age 75 or over, your beneficiaries will usually have to pay income tax at their own marginal rate when they withdraw funds from your pension. This means your pension funds could be subject to IHT when you pass away and then income tax when your loved ones access their inherited pension wealth.

As the standard IHT rate is 40% (payable on the portion of an estate that exceeds available nil-rate bands), this double tax could significantly reduce your loved ones’ inheritance – especially if they are higher or additional-rate taxpayers.

How trusts could reduce an inheritance tax bill for your loved ones

If the value of your estate is likely to exceed the nil-rate bands, placing some assets in trust could help you reduce a potential IHT bill for your beneficiaries.

Once you transfer assets into certain types of trust, they no longer legally belong to you and are treated as a potentially exempt transfer (PET). This means that if you survive for seven years after making the gift, those assets (and any growth they generate) usually fall outside your estate for IHT purposes.

If you pass away before the seven-year period is up, the assets in trust may qualify for a reduced IHT rate. This is calculated on a sliding scale (known as ‘taper relief’) depending on how soon after giving the gift you die.

However, it’s important to note that trusts are not completely free from IHT. Depending on which type of trust you choose, you may have to pay IHT charges every 10 years, and potentially upfront on larger settlements.

4 important considerations when setting up a trust

You can set up a trust in your lifetime or include one in your will. Whichever option you choose, here are four important things to consider before you do so:

1. How much control you want to retain – Certain types of trust (known as ‘irrevocable trusts’) involve you giving up ownership and control of the assets you transfer in, whereas ‘revocable’ or ‘living’ trusts give you greater flexibility to make changes during your lifetime
2. What your family circumstances and goals are – The government website lists seven types of trust; it’s crucial to choose one that meets your needs and purpose
3. The IHT implications – As mentioned above, trusts often involve upfront and ongoing tax charges which you need to factor into your planning
4. How trusts will fit into your broader estate plan – Trusts need to work alongside other IHT reliefs, exemptions and your wider financial plan

Your financial planner can help you set up trusts that align with your specific needs and goals

The rules around trusts are complex and often difficult to navigate, especially for HNWIs with significant assets, business interests, blended families and so on.

Your financial planner can use advanced structure modelling to ensure any trusts you set up align with your long-term financial plan and legacy wishes. They will also review your strategy in light of changing legislation, keeping your estate plan as tax efficient as possible.

We work closely with the trusts and estates team at PKF Francis Clark, so your financial, tax and trusts advice sits under one roof. This joined-up approach ensures you receive the specialist advice you need and that your estate plan aligns with your broader financial goals.

Please note

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

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

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, trusts or lasting powers of attorney.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, 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.