Nil-Rate Band Discretionary Trust

Q: Does the trust help with care fees?

It is not a way to avoid care fees. Where assets are deliberately arranged to reduce what someone pays for care, a local authority can treat it as deliberate deprivation and assess as though the assets were still held, per gov.uk as at July 2026 and subject to change. A will trust may form part of wider planning around later-life costs, but it is general information about limiting impact, not a way to avoid fees. Advice is sensible here.

What is a nil-rate band discretionary trust?

It is a discretionary trust created by a will that takes a legacy equal to the deceased's available nil-rate band, currently £325,000, and holds it for a class of beneficiaries such as the surviving partner, children and grandchildren (gov.uk, as at July 2026, subject to change). The trustees decide who benefits and when, which is what makes it discretionary rather than fixed.

How does it work in a will?

On the first partner's death, a legacy up to the nil-rate band passes to trustees instead of to the survivor, so it uses the band that would otherwise be transferred. Because a home is often the main asset, the trust may be satisfied by a charge or debt over the deceased's share of the property, letting the survivor stay in the home while the trustees hold the value (gov.uk, Practice Guide 70, as at July 2026, subject to change).

The legacy. Each will leaves an amount up to the nil-rate band to the trust on that partner's death.

The trustees. They hold the assets for a class of beneficiaries, often including the surviving partner.

The home. A charge or loan arrangement can let the survivor remain in the property.

The second death. Assets held in the trust generally sit outside the survivor's own estate.

The transferable nil-rate band changed things

Before October 2007, a nil-rate band left outright to a surviving spouse was effectively wasted, because spouse transfers are exempt and the band went unused. A trust captured that band instead. Since 9 October 2007, any unused nil-rate band can transfer to the survivor and be claimed on the second death, so for many couples the same tax-free amount is now available without a trust (gov.uk, Practice Guide 70, as at July 2026, subject to change).

As a result, some existing trusts of this kind no longer offer a tax saving, and trustees sometimes wind them up. Whether one still helps depends on the family and the assets, so it can be worth discussing with a qualified professional. See our note on the transferable nil-rate band for how the transfer is claimed.

Why do some people still use one?

Although the tax argument has narrowed, a discretionary trust of this kind can still serve non-tax aims. Because the trustees, not the survivor, control the assets, some families use it to provide for children from a previous relationship, to keep flexibility over who benefits, or to hold value where a survivor might remarry. These are planning reasons rather than guarantees, and outcomes depend on circumstances.

Second families. It can help provide for children from an earlier relationship alongside a new spouse.

Flexibility. Trustees can respond to changes in the family over time.

Vulnerable beneficiaries. Holding assets in trust can suit a beneficiary who cannot manage money directly.

On later-life care, it is worth being clear that a trust set up in a will is not a route to deliberately put assets beyond a local authority's reach. Where someone deliberately gives away or arranges assets to reduce what they pay for care, a council can treat it as deliberate deprivation of assets and assess as if the person still held them (gov.uk, paying for your care, as at July 2026, subject to change). This is general information about limiting the impact of care fees, not a way to avoid them, and it can be worth discussing with a qualified professional.

How is the trust taxed?

A nil-rate band discretionary trust is usually a relevant property trust, so it has its own inheritance tax charges alongside any income tax and capital gains tax on trust assets. Because the legacy is set at or below the nil-rate band, an entry charge on death is often not triggered, but the trust can still face periodic and exit charges over its life.

Charge	How it applies (July 2026)
Lifetime transfer into trust (if trustees pay)	20% on value above the nil-rate band
10-year anniversary charge	Up to a maximum of 6%
Exit charge (assets leaving the trust)	Up to a maximum of 6%
Nil-rate band the trust is built around	£325,000

Charge

How it applies (July 2026)

Lifetime transfer into trust (if trustees pay)

20% on value above the nil-rate band

10-year anniversary charge

Up to a maximum of 6%

Exit charge (assets leaving the trust)

Up to a maximum of 6%

Nil-rate band the trust is built around

£325,000

Source: gov.uk, trusts and inheritance tax, as at July 2026, subject to change. The nil-rate band is fixed until the end of the 2030-31 tax year (5 April 2031) (gov.uk), subject to change. Registering the trust with HMRC may also be required (gov.uk, register a trust).

A worked example (illustration only). A husband dies first, leaving a legacy up to his nil-rate band of £325,000 into a discretionary trust rather than to his wife (gov.uk, as at July 2026, subject to change). Because the trust is set at the band, no entry charge arises on death. The trust holds a charge over his half of the family home so his wife can stay there. Over the trust's life it may face a charge of up to 6% at each ten-year anniversary and on assets leaving it (gov.uk, as at July 2026, subject to change). Whether this beats simply relying on the transferable nil-rate band depends entirely on the family, so this is general information, not a calculation for any real estate.

How this differs in Scotland and Northern Ireland

Inheritance tax is a UK-wide tax, so the £325,000 nil-rate band and the trust charges apply across all four nations (gov.uk, as at July 2026, subject to change). What differs is the surrounding succession law. Scotland has its own rules, including legal rights that can give a spouse and children a fixed share of an estate regardless of the will, which can affect how a trust in a will operates. Northern Ireland runs a separate but broadly similar system to England and Wales. Where an estate touches more than one nation, it can be worth taking advice in each. For the wider context, see our estate planning guide.

Frequently asked questions

Is a nil-rate band discretionary trust still worth it?

It depends. Since 9 October 2007 the transferable nil-rate band lets a survivor claim the first partner's unused band, so the tax case is weaker for many couples (gov.uk, as at July 2026, subject to change). Non-tax reasons, such as providing for a second family, may still apply. Many people discuss the trade-offs with a qualified professional before deciding.

How much can go into the trust?

Typically an amount up to the available nil-rate band, currently £325,000 per person (gov.uk, as at July 2026, subject to change). Setting the legacy at or below the band usually avoids an inheritance tax charge when the trust is created on death. The exact figure and wording depend on the will and the person's other gifts, so it varies from estate to estate.

What tax charges can the trust face over time?

As a relevant property trust it can face a charge of up to a maximum of 6% at each ten-year anniversary and on assets leaving the trust, and a 20% charge can apply to lifetime transfers into a trust above the band where trustees pay (gov.uk, as at July 2026, subject to change). Income and gains within the trust may also be taxed. The actual amounts depend on the trust's value and history.

Does the trust help with care fees?

It is not designed to do that. Where assets are deliberately arranged to reduce what someone pays for care, a local authority can treat it as deliberate deprivation and assess as though the assets were still held (gov.uk, as at July 2026, subject to change). A will trust may form part of wider planning around later-life costs, but it is general information about limiting impact, not a way to avoid fees. Advice is sensible here.

Can an existing nil-rate band discretionary trust be wound up?

Often yes. Where a trust no longer offers a tax advantage, trustees may, with agreement and the right conditions, bring it to an end, and in some cases a deed of variation within two years of death can rearrange matters (gov.uk, as at July 2026, subject to change). This involves legal and tax judgements, so it is one option some consider only after taking professional advice.

Do I need a solicitor to set one up?

Trusts written into wills involve technical drafting and tax rules, so many people use a solicitor or a STEP practitioner rather than a template. The wording, the charge over any property and the interaction with the transferable nil-rate band all need care. Because mistakes can be costly, this is generally an area where qualified advice is worth considering before anything is signed.

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at July 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.

Nil-Rate Band Discretionary Trusts Explained