The problem a trust solves

An outright gift becomes the recipient's asset the moment it lands. From that point it is exposed to everything in their life — and none of it is anything you can control from where you'll be standing.

The person who holds the asset and the person who benefits from it stop being the same person. That separation is the whole mechanism. Everything else is detail about which version of it fits your situation.

Three parties, and that's it

• The settlor — you. The person putting the asset in and setting the rules.
• The trustees — the people who hold and manage it. Usually two or more; there are situations where two is a legal minimum, particularly involving land.
• The beneficiaries — the people who can benefit, either fixed by name or drawn from a class you define.

Alongside the trust deed sits a letter of wishes: your guidance to the trustees on how you'd want the discretion exercised. Not binding, not public, and often the most useful document in the file.

A will is for after. This is for while you're still here.

Most people put an LPA in the same mental box as a will — something to sort out later, in old age. But a will only starts working once you've died. An LPA covers the gap most families never plan for: you're alive, and you can't make decisions.

That gap is where the real damage happens. Bills go unpaid. A joint account is frozen. A house sale falls through. Nobody can talk to the mortgage lender. And the people who love you are told, repeatedly, that they have no legal authority to act.

A deputyship isn't just slower and more expensive. It's supervised, it comes with ongoing reporting and annual fees, and the court chooses the deputy — not you. An LPA takes half an hour of your time and puts the choice back where it belongs.

This is the part that catches people out. Capacity is a requirement for making an LPA. Once it's gone, the option is gone with it, and deputyship is the only route left. There's no late application, no exception for close family, and no way to argue it afterwards.

Choosing your attorneys

Attorneys must act in your best interests, follow the Mental Capacity Act principles, and keep your money separate from theirs. Choose people who will still be capable in twenty years, and who will actually do it.

• Jointly or jointly and severally — appointing more than one, and deciding whether they must always act together or can act alone. Requiring unanimity sounds safer but can paralyse things in practice.
• Replacement attorneys — a reserve, in case your first choice dies, loses capacity or steps down.
• Instructions and preferences — binding instructions on what they must or must not do, and non-binding preferences on how you'd like decisions approached.
• The certificate provider — an independent person who confirms you understand the document and aren't under pressure.

Business owners: the one everyone forgets

If you're a sole director, losing capacity can stop the company dead. Nobody can sign, authorise payments, or run payroll. A personal LPA may not be enough on its own, and a separate business LPA is often the right answer. It's worth checking your articles of association at the same time.

Most guides to property protection trusts are written to sell you one. This one is written to help you work out whether you need one — which, for a good number of people, means finding out that you don't.

1. How you own your home, and why it decides everything

Before anything else, there is a question most people have never been asked: how do you and your partner hold the title to your home? There are only two answers, and they produce completely different outcomes.

This matters because a property protection trust is impossible while you hold as joint tenants. There is nothing for your will to give away. Before any trust can work, the joint tenancy has to be severed — converted into a tenancy in common. That's a straightforward step involving a notice and a restriction registered at the Land Registry, and it can be done unilaterally if necessary.

2. Sideways disinheritance: the problem this actually solves

Here is the scenario that a property protection trust is genuinely designed for. It is worth following slowly, because almost everyone assumes it can't happen to them.

A couple own their home as joint tenants. They have two children. Both have simple wills leaving everything to each other, then to the children. Sensible, and what most people do.

The husband dies. Under survivorship, the entire house passes to his wife. She now owns it outright, solely, in her own name.

Some years later she remarries. Under the law of England and Wales, marriage revokes an existing will unless that will was made in contemplation of the marriage. Her old will — the one leaving everything to her children — is now void. If she doesn't make a new one, the intestacy rules apply, and her new husband takes a substantial share.

She then dies. The house passes to her second husband. On his death, it passes under his will — typically to his own children.

The result is that a house built up over a lifetime by the first couple ends up with people neither of them ever met. Their own children receive nothing. Nobody acted in bad faith at any point. This is simply what the rules produce when nothing is done.

This is called sideways disinheritance, and it is the strongest argument for a property protection trust. Note that it has nothing to do with care fees or tax. It is about control over where your own share ends up.

3. How a property protection trust works

The mechanism is simpler than the name suggests.

The survivor cannot sell your share, give it away, or leave it to anyone in their own will. That is the entire point. They have the use of it; they do not own it.

4. Care fees: what it does and doesn't do

This is where most guides overstate the position, so let's be precise.

What it does: when the survivor is later assessed by the local authority for care costs, the half held in trust is not theirs. They have a right of occupation, not ownership. That share is generally outside the financial assessment, and is preserved for your children.

What it does not do: it does not protect the survivor's own half. That remains theirs, and remains assessable in the ordinary way. A property protection trust is not a way of shielding a whole house from care costs. It ring-fences one half.

Anyone who tells you it protects the entire property is either being careless or selling something.

5. Deprivation of assets, and the myth about timing

What the local authority actually asks is twofold. Was avoiding the care charge a significant motivation for the disposal? And at the time of the disposal, could the person reasonably have foreseen the need for care?

This is why a transfer made in poor health, shortly before a care assessment, is vulnerable however it is structured — and why one made years earlier, in good health, for reasons that had nothing to do with care, is far more defensible.

Now here is the part that most competitor pages either miss or deliberately blur.

A property protection trust in a will is largely outside this analysis altogether. The trust comes into being on death. The person later assessed for care is the survivor — and the survivor never owned the deceased's half. You cannot deprive yourself of an asset you never had.

The only lifetime step is severing the joint tenancy, and severance is not a deprivation: you still own your fifty per cent, you have simply changed the manner in which it is held. Nothing has left your estate.

Compare that with a lifetime trust, where the person transferring the property is the same person who may later be assessed. There, deprivation is squarely in play, and timing and health become critical. That distinction — between a trust that operates on death and one that operates now — is the single most important thing on this page.

6. Protection from a survivor's creditors

A benefit that gets far less attention than care fees, and is often more relevant.

If your surviving spouse inherits the whole house outright and later runs into financial trouble — a business that fails, a personal guarantee called in, bankruptcy — creditors can look to the property. In bankruptcy, the trustee can seek an order for sale of the family home.

Where half the house sits in trust for your children, that half is not the survivor's asset and is not available to their creditors. For anyone whose spouse is a company director, self-employed, or has given personal guarantees, this is frequently the stronger argument of the two.

7. Why a lifetime trust is usually the wrong answer

Lifetime trusts — sometimes marketed as "asset protection trusts", "family protection trusts" or, using an American term that has no meaning in English law, "living trusts" — are sold heavily on the promise of protecting the family home from care fees. For most people they are the wrong tool, and the reasons are worth setting out in full.

Issue	What actually happens
Immediate tax charge	A transfer into most lifetime trusts is a chargeable lifetime transfer. Value above the available nil-rate band (£325,000 per person) attracts an immediate 20% entry charge.
Ongoing charges	Ten-yearly periodic charges and exit charges apply for as long as the trust exists. A property that is under the threshold today may not be at the next ten-year anniversary.
Residence nil-rate band lost	The RNRB requires the home to pass to lineal descendants on death. If it left your estate years earlier, there is no qualifying residence to pass, and the band — up to £175,000 per person — is lost.
Capital gains on sale	Principal private residence relief is generally lost once the property is held in trust. On eventual sale, a CGT bill can arise that would never have existed had the property simply passed on death with its uplift in base cost.
Gift with reservation	If you transfer the home into trust but carry on living in it rent-free, the reservation of benefit rules generally bring it straight back into your estate for inheritance tax — so you have paid the entry charge, lost the RNRB, lost PPR relief, and saved nothing.
Deprivation risk	Unlike a will trust, this is a lifetime disposal by the very person who may later need care. It is exactly what the deprivation rules are aimed at.
Administration	Trustees must be appointed, registered with HMRC's Trust Registration Service, and maintained for decades. That obligation passes to your family.

The smaller estate is the worse case, not the safer one. A couple whose home is worth £400,000 and who own little else already have no inheritance tax to pay — two nil-rate bands and two residence bands take a couple to £1m. There was no tax problem to solve. Yet the trust still costs them the RNRB, still risks the CGT position, and still exposes them to a deprivation challenge on the one asset the local authority will be looking at.

Where a lifetime trust can genuinely make sense is quite different: surplus assets that you can afford to give away completely and never benefit from again. An investment portfolio, a second property, cash beyond anything you will realistically spend. Not the roof over your head.

8. Where these go wrong

A property protection trust is only as good as the document that creates it. Common failures:

• A power of advancement drafted too widely. If trustees can advance the whole of the trust capital to the surviving spouse, the protection you paid for can be dismantled the moment you are no longer there to object. This is the single most common flaw.
• The severance never completed. Wills drafted beautifully, joint tenancy never actually severed, no Form A restriction registered. On the first death, survivorship applies and the trust receives nothing at all.
• Trustees who are also the sole beneficiary of the occupation right. Appointing only the surviving spouse creates an obvious conflict. An independent second trustee is usually worth the trouble.
• No thought given to what happens if the survivor wants to move. Good drafting allows for a replacement property and for downsizing, with the trust's proportionate share carried across.
• Nobody told the family the trust exists. Trusts have been overlooked entirely on second death because no one knew to look for them.

It is also worth understanding that most property protection trusts are drafted so that the survivor has an immediate post-death interest — a right to occupy for life. For inheritance tax purposes, that generally means the trust share is treated as part of the survivor's estate on their death, even though they never owned it outright. That is normally fine, and it preserves the spouse exemption on the first death. But it means a PPT is a tool for control and protection, not for reducing inheritance tax. Anyone presenting it as an IHT saving is confusing two different things.

9. Questions to ask whoever is advising you

Whether you speak to me or to anyone else, these are the questions worth asking. The answers will tell you a great deal.

• Is this trust created by my will, or does it take effect during my lifetime? What difference does that make to deprivation of assets?
• How is the power of advancement drafted, and could it be used to defeat the protection?
• Who will actually complete the severance of the joint tenancy, and will the restriction be registered at the Land Registry?
• What happens to my residence nil-rate band under this arrangement?
• What are the ongoing administration duties, who carries them, and what will they cost?
• Given my estate, is there actually any inheritance tax to save — or am I solving a problem I don't have?
• What would happen if I did nothing at all?

That last one is the most useful question in estate planning, and the one least often asked.

Most of what people believe about trusts and inheritance tax comes from someone selling something. This guide sets out how the rules actually work, so you can judge any advice you're given — including mine.

The numbers that matter (2026/27)

Allowance or rule	What it is
Nil-rate band	£325,000 per person, frozen until April 2031
Residence nil-rate band	£175,000 per person, if your home goes to your children or grandchildren
Most a married couple can pass on tax-free	£1,000,000, using both people's allowances
Residence band taper	£1 of the band is lost for every £2 your estate is worth over £2,000,000
Inheritance tax rate	40% on the amount above your allowances (36% if at least 10% of the estate goes to charity)
Gift into most trusts in your lifetime	20% straight away on the amount above your available nil-rate band
Trust ten-year charge	Up to 6% of the value above the nil-rate band
Annual gift exemption	£3,000 a year, plus last year's £3,000 if you didn't use it
Business and agricultural relief	100% on the first £2.5 million, 50% above that (from 6 April 2026)
Pensions	Unused pension funds count as part of your estate from 6 April 2027

1. The two allowances: nil-rate band and residence nil-rate band

Inheritance tax is charged at 40% on the part of your estate above your allowances. Your estate is everything you own when you die — your home, savings, investments and business interests, and from April 2027 most unused pension money — minus your debts and funeral costs.

The nil-rate band: £325,000

Everyone has a nil-rate band of £325,000. It has been at that level since 2009 and is frozen until at least April 2031. House prices have risen and the band hasn't, so more ordinary families are drawn in every year.

Anything you leave to your husband, wife or civil partner is normally free of inheritance tax, whatever the amount. Whatever nil-rate band you don't use on the first death passes to the survivor. So if the first of a couple leaves everything to the other, the survivor's estate can use two full nil-rate bands: £650,000.

The residence nil-rate band: £175,000

On top of that there's an extra £175,000 if you leave your home, or your share of it, to your direct descendants. That means children, grandchildren and great-grandchildren, including step-children, adopted and foster children, and their husbands, wives or civil partners. It does not include nephews, nieces, brothers or sisters.

This band is also transferable between spouses, so a couple can have up to £350,000 of it. Together with two nil-rate bands, that is how a married couple can pass on up to £1 million free of inheritance tax.

If you've sold your home or downsized since 8 July 2015, you may still be able to claim it under the downsizing rules, as long as other assets of equal value go to your descendants.

2. The £2 million taper, and why pensions matter from 2027

The residence nil-rate band is withdrawn from larger estates. For every £2 your estate is worth over £2 million, you lose £1 of it.

• A single person loses the whole £175,000 once their estate reaches £2.35 million.
• A surviving spouse who also has their partner's band (£350,000 in total) loses it all at £2.7 million.
• The test uses everything you own, minus debts, before any reliefs or exemptions. Business property relief and gifts to charity reduce the tax, but they don't help you stay under £2 million for this test.

Pensions from 6 April 2027

Until now, most unused pension money has sat outside your estate. From 6 April 2027, unused pension funds and most pension death benefits will count as part of your estate for inheritance tax. Death-in-service benefits from a registered pension scheme are excluded. Your executors will be responsible for reporting and paying any tax due.

For many people with a good workplace or private pension, this is what will push the estate over £2 million and into the taper. If you were told your pension "doesn't count", that advice has a sell-by date.

Ways people manage the taper include lifetime gifts (section 3), how business assets are left (section 9), gifts to charity, and life insurance written in trust to pay the bill. Which of those makes sense depends on how much you can afford to give away, and that is the conversation to have first.

3. Gifts in your lifetime: the seven-year rule

A gift to another person, such as one of your children, is called a potentially exempt transfer. There's no tax when you make it. If you live for seven years afterwards, it drops out of your estate completely.

If you die within seven years, the gift is added back. It uses up your nil-rate band first, before the rest of your estate. If your gifts in those seven years come to more than £325,000, tax is due on the excess. Taper relief reduces that tax if the gift was made more than three years before death:

Years between gift and death	Tax rate on the part above the nil-rate band
Less than 3	40%
3 to 4	32%
4 to 5	24%
5 to 6	16%
6 to 7	8%
7 or more	0%

Gifts that are free straight away

• £3,000 a year in total, plus last year's £3,000 if you didn't use it.
• Small gifts of up to £250 per person, to as many people as you like, as long as that person hasn't also had part of your £3,000.
• Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
• Regular gifts out of surplus income, such as paying a grandchild's school fees from your pension income, with no limit, as long as you can still afford your normal lifestyle. Keep records; your executors will need to prove it.
• Gifts to your spouse or civil partner, and to UK charities.

4. Gifts into trust: chargeable lifetime transfers and the 20% entry charge

Gifts into most trusts work differently. Since March 2006, putting assets into a discretionary trust, or most other trusts set up in your lifetime, is a chargeable lifetime transfer. Tax can be due straight away, not just if you die.

How the entry charge works

The order of gifts matters too. When someone dies within seven years of a gift to a person, any trust gifts made in the seven years before that gift can be brought back into the sum, so the look-back can stretch to 14 years.

Then the trust's own charges

Once assets are in a discretionary-type trust, they sit in their own tax system. Every ten years there is a periodic charge of up to 6% of the value above the nil-rate band at that time. When money or property leaves the trust there can be an exit charge, worked out as a proportion of that rate. If the trust stays under the nil-rate band these charges can be nil — but property values rise and the band doesn't.

The trust must also be registered with HMRC's Trust Registration Service and kept up to date. If it earns more than £500 a year, the trustees pay income tax at 45% (39.35% on dividends) and file tax returns.

5. Living trusts: putting your home into trust while you're alive

"Living trust" is an American term. In the United States it is mainly used to avoid probate, and the tax rules are completely different. Here, the phrase is usually used to sell a lifetime trust for your home, often called an "asset protection trust" or a "family protection trust". Some are useful. Many are sold to people who would be better off with a well-drafted will.

What happens on the day your home goes in

Cost	What actually happens
Inheritance tax	For most of these trusts the transfer is a chargeable lifetime transfer. If the value is more than your available nil-rate band, 20% is due on the excess straight away. A £500,000 home given by one person with no earlier gifts: (£500,000 − £6,000 − £325,000) × 20% = £33,800. A couple giving their halves of the same home would each be under the band, but would use up their nil-rate bands for seven years.
Capital gains tax	Giving property away counts as selling it at market value. If it has been your only or main home throughout, private residence relief normally means no capital gains tax. For a buy-to-let or second home, tax is due on the gain, and the usual way of deferring it (holdover relief) isn't available if you or your spouse can benefit from the trust.
Stamp duty land tax	Normally none on a gift. But if the home has a mortgage and the trustees take it over, the debt counts as payment and stamp duty can be due. You will also need your lender's permission.
Legal and registration costs	Fees to draft the trust, transfer the title and register it at the Land Registry, plus registering the trust with HMRC.

What it costs afterwards

• Ten-yearly and exit charges if the value is above the nil-rate band at the time. A home worth £300,000 today may be well over £325,000 at the first ten-year anniversary.
• Trustee work every year: keeping records, keeping the HMRC registration up to date, insurance, and tax returns if the property earns rent (taxed at 45% once income is over £500 a year).
• Losing the capital gains "uplift" on death. Anything you own when you die is revalued for capital gains tax at that date, so your family can sell it without paying tax on the growth during your lifetime. Property in a lifetime trust doesn't get that reset. When the trustees eventually sell, tax can be due on all the growth since you put it in, and private residence relief generally only helps while a beneficiary lives there under the trust.
• Losing the residence nil-rate band, worth up to £175,000, because your children no longer inherit the home directly on your death.

The genuine benefits

• Control. The trustees follow your rules about who benefits, when, and on what conditions.
• No probate for those assets. Property already in trust doesn't wait for probate and doesn't become part of a public record.
• Protection for the next generation. Assets in a discretionary trust are much better protected from a beneficiary's divorce, bankruptcy or poor decisions than assets given outright.
• A real inheritance tax saving, but only in one situation: you are completely excluded from benefiting, and you live for seven years. Then the value, and all future growth, is outside your estate. That works for money you will genuinely never need, such as investments, cash or a second property. It almost never works for the home you live in.

6. Gifts with reservation of benefit

This is the rule that defeats most home-into-trust schemes. If you give something away but carry on benefiting from it, for inheritance tax it is treated as if you still own it. The classic case is giving your house to your children, or to a trust, and carrying on living there rent-free.

When you die, the property is counted in your estate at its value on the date of death, as if you had never given it away. The seven-year clock doesn't start while you keep the benefit.

Put that together with the trust rules and you can get the worst of both worlds. You may have paid a 20% entry charge on the way in. The home is still taxed in your estate on death; there are rules to stop the same value being taxed twice, but nothing is saved. The residence nil-rate band is usually lost, and so is the capital gains uplift.

The only ways round it

• Pay a full market rent for as long as you live there. The rent is taxable income for whoever receives it.
• Share the home with the person you gave it to. If they live there too and you pay your fair share of the running costs, the rule doesn't apply. This works for a share of the home given to an adult child who lives with you, not for a trust.
• Genuinely move out and stop benefiting.

Some arrangements that avoid the reservation rules trigger a separate yearly income tax charge on "pre-owned assets" instead. Anyone proposing a plan where you give your home away but keep living in it should be able to explain, in writing, why neither rule applies.

7. Tenants in common or a trust: what happens to your share

People often ask whether they need a trust or should just become tenants in common. They aren't alternatives. Tenancy in common is how you own the home; a trust is one of the things your will can do with your share once you own it that way. If you're not sure how you own your home, the property protection trust guide explains how to check for £3.

Here is what happens to the first share on the first death, for a married couple with two children, under each arrangement:

Swipe the table sideways to see all four options →

What happens inside the trust

None of this works unless the joint tenancy is actually severed, and the restriction registered at the Land Registry, before the first death. It is the most common reason these trusts fail.

8. Vulnerable person trusts

A vulnerable person trust holds money for someone who can't safely receive an inheritance outright: because of a disability, an illness or a lack of mental capacity, or because they are a child who has lost a parent.

Two different things get called a "vulnerable person trust", and it helps to keep them apart:

Who counts as a vulnerable beneficiary for HMRC

• A disabled person who receives a qualifying benefit, such as Personal Independence Payment, Attendance Allowance, Armed Forces Independence Payment, or Disability Living Allowance at the middle or highest care rate or the higher mobility rate.
• Someone unable to manage their own affairs because of a mental health condition.
• A bereaved minor: a child under 18 whose parent has died.

How it is taxed

• Income tax and capital gains tax are worked out as if the beneficiary had received the income or gain directly, so their personal allowance and lower tax rates are used. The capital gains allowance is £3,000, the same as an individual's.
• Inheritance tax: a disabled person's trust has no ten-yearly or exit charges. The trust fund is treated as part of the disabled person's own estate when they die. A gift into one in your lifetime is treated like a gift to a person: no entry charge, and free of inheritance tax if you live seven years.
• Making the claim: the trustees and the beneficiary sign a Vulnerable Person Election (form VPE1) and send it to HMRC. HMRC must be told if the person dies or is no longer vulnerable.

The rules on how the money can be used are strict: broadly, it must be used mainly for the vulnerable person during their lifetime. A well-written letter of wishes matters as much as the trust itself here. It tells the trustees what kind of life you want the money to support.

9. Business property relief after April 2026

Business property relief exists so that a family business doesn't have to be broken up to pay inheritance tax. For years it gave 100% relief with no upper limit. That changed on 6 April 2026.

What qualifies

• Shares in an unlisted trading company, or an interest in a trading business or partnership: 100% relief, within the new allowance.
• Land, buildings or machinery you own personally but your company or partnership uses: 50% relief.
• Shares on the AIM market: now 50% relief only.
• In every case you normally need to have owned the asset for at least two years.

What doesn't

• Businesses that mainly hold investments, including most buy-to-let portfolios and property-letting companies. A limited company holding rental property is generally an investment business, not a trading one.
• Cash or investments a trading company doesn't need for the business can be excluded from the relief.
• Shares under a binding contract for sale at death, which some shareholder agreements create by accident. Agreements based on options avoid this.

The rules from 6 April 2026

Rule	What it means
First £2.5 million	100% relief on business and agricultural property combined
Above £2.5 million	50% relief, an effective tax rate of 20%
Unused allowance	Can pass to a surviving spouse or civil partner, so a couple can have up to £5 million
AIM shares	50% relief, and they don't use the £2.5 million allowance
Paying the tax	Can be spread over 10 equal yearly instalments, interest-free
Lifetime gifts and trusts	The allowance refreshes every seven years for lifetime gifts. Trusts have their own rules.

The will mistake that wastes it

Many people leave everything, business included, to their spouse. The spouse exemption covers that anyway, so the business relief does nothing on the first death. If the survivor later sells the business, the relief is gone, because cash doesn't qualify, and the full value is taxed when they die.

A common alternative is a business property trust in the will. The business assets go into a discretionary trust, with the spouse as one of the beneficiaries, and everything else goes to the spouse. The relief is used on the first death, and the value stays protected for the family whatever happens later. The new transferable allowance helps couples, but it doesn't remove the risk of a sale before the second death. Any plan made before April 2026 should be reviewed.

10. Questions to ask before you set up any trust

• Is this a will trust, which only starts when I die, or a lifetime trust, which starts now?
• What tax is due on the way in, every ten years and on the way out, in pounds, for my figures?
• Will I lose the residence nil-rate band or the capital gains uplift on death?
• Can I still benefit? If so, why isn't it a gift with reservation?
• Who will the trustees be, and what will they have to do every year?
• What will it cost to set up, to run each year, and to wind up?
• What would happen if I simply had a good will instead?

If an adviser can't answer those in writing before you sign, that tells you what you need to know.