NRB Trusts: Yes or no?

Most married couples and civil partners choose to leave their personal estate to their surviving spouse in their will. Some include a Nil Rate Band (NRB) trust, sometimes called a ‘discretionary trust’, ‘flexible trust’ or ‘legacy fund’.

Why? Because NRB trusts can potentially reduce the amount of inheritance tax that is ultimately due.

Unfortunately, many generalist probate lawyers deter people from using NRB trusts in the first place, either because they do not have the experience and skills required or because they do not understand the benefits.

HMRC are happy to allow NRB trusts. Despite that, many commentators have been getting flustered about the potential tax implications, and publishing media articles recommending that the trusts are dismantled.

We have frequently had reports of NRB trusts actually being dismantled, with lawyers saying they are complicated and cost a large amount to run.

This need not be the case – so it really gets my goat! (This explains the picture at the head of this article.)

A decision such as winding up an NRB trust should not be taken lightly. It needs careful thought, with all practical planning considerations being taken into account.

Back to basics: What’s the NRB?

The Nil Rate Band is an inheritance tax exemption of up to £325,000* that you can leave in trust to benefit your surviving spouse/partner and children, and to protect family money through the generations.

The Transferable NRB has existed since October 2007, and allows married couples and civil partners to combine their individual NRBs to total £650,000 on the second death.

The Residence NRB was introduced in 2017 and is particularly applicable if you own property and have children or grandchildren. It should be worth £350,000 by 2020. When added to the basic NRB, this gives a couple combined inheritance tax exemptions totalling up to £1m.

Why might you want a NRB trust?

It’s easiest to explain the benefits by using some imaginary examples:

Adam dies jointly owning a house worth £650K which is subsequently owned solely by his wife, Eve. She dies ten years later, when the value of the house has increased to £950K. In this case, inheritance tax will apply to all the growth. If Adam had left his share in trust for Eve, the £150,000 growth of his share would have been IHT-free.

There is not much point in having a simple will that gives assets to family members outright if that value then becomes exposed to tax risk.

If Adam dies owning assets that qualify for IHT Business Property Relief or Agricultural Property Relief, when these assets pass to Eve and she then sells them, she loses these reliefs. IHT would then be payable on the proceeds of sale after her death.

If you have assets that qualify for incredibly generous reliefs, we recommend you capture the reliefs by passing the assets to a trust on the death of the first partner.

Let’s say Adam was a widower when he married Eve, and he’d previously inherited assets from his first wife, Mary. When Adam dies, Mary’s Transferable NRB needs to be captured in an NRB trust. Otherwise, Eve’s executors won’t be able to claim it in full and will lose a possible IHT saving of £130K. What’s more, the NRB trust may mean that Eve’s estate can be kept below the new Residence NRB threshold of £2m.

If you have inherited assets from a former spouse, you can protect them in an NRB trust. If your estate is large enough, you can also include the Residence NRB with a Residence NRB will trust.

The reality is that the majority of trusts are not used for tax planning. Indeed, many couples choose trust planning because of protective benefits and bloodline protection i.e. making sure assets pass to who they are intended for.

Why to retain any NRB trust

Trusts are particularly useful when there’s been a second marriage, and for people who are concerned about the surviving spouse having enough money to pay for long-term care.

“Trust arrangements that provide enormous flexibility and the scope for a family’s wealth to be protected and preserved across multiple generations should not be lightly dismissed.”
Stephen C Haggett writing for

We agree. We think an NRB trust is a great gift. It’s literally a ‘once in a lifetime’ opportunity.


Because the person who originally set up the NRB trust will have taken good advice and invested money in their financial planning – and you should make use of that. If trust planning is maintained, beneficiaries will have options and can decide what’s best to do at the time. If you wind up the NRB trust, the beneficiaries will have no protection and future generations may end up paying unnecessary tax.

In summary, please do not give up your NRB trust without careful consideration. Admittedly, there is some additional cost at probate (normally a few hundred pounds), but the ongoing maintenance can be extremely low if you use a specialist legal practitioner and not a generalist.

Lastly, if you do not have a will – or your will offers no IHT protection – you should do something about it and add trust planning now. If you don’t, and you have attained high net worth (assets worth over £250,000), you risk losing tax benefits.

While you’re at it, do not restrict the advice you seek to just your estate planning, you could also make sure you have trusts for your death in service, pensions and life cover.

*The Government have announced that this limit is being held until 2021.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100