Inheritance Tax and Trust

GJL2618

Good Afternoon all!

I appreciate fully and am not trying to get advice on here but guidance on whether I am quite frankly wrong.

My parents have a house about 800,000 and savings of up to 500,000

The house has been put in a trust between myself and my sister and them. Recently I have had concerns that this is not the best thing to do inheritance tax wise etc. Also I would prefer to pay the cash to carers if it ever became a problem to look after them rather than sending them to a home unless absolutely needed. I feel that we need a professional to give advice and pay them money rather than someone looking to sell products. However as my sister needs a will they have got a will write grom the abulance service and seem to think they may be able to give some advice. Quite frankly I am starting to get worried and not sure which way to push with them etc any advise would be appreicate

RAS

If your sister needs a will, she needs to clarify if the ambulance service deal leads to will writers or to lawyers. The latter are registered with a recognised professional regulator.

Regarding your parent's situation, wills commonly put the first deceased spouse's share of the house into trust for children, with the survivor retaining the right to live there for the rest of their lives. The exact details are written into the will but the children don't inherit anything until the second parent dies.

If the trust comes into existence before the first spouse dies, then you need to clarify exactly what has been done as badly designed trusts create other tax liabilities which negate perceived advantage of cutting IHT. Did you have to sign any paperwork?

DRS1

You may want a STEP solicitor. You can search for one near you on this

Member search | STEP

I am not entirely clear if the house is in a trust as such or if the ownership of the house has just been split 4 ways. I assume you don't all live in the house? If not there may be a CGT issue. From an IHT point of view it may be your parents have made a gift with a reservation of benefit (maybe not a good idea?)

Dead_keen

The house has been put in a trust between myself and my sister and them. 

So it is already in trust? If so, find a STEP member to get advice.

To see why this might be a bad idea from a common sense perspective, have a google for something like: mcclure trust scandal.

To see why it might not be effective from an IHT perspective (unless your parents have moved out of their home or they pay a market rent), google: gwr iht home

However as my sister needs a will they have got a will write grom the abulance service and seem to think they may be able to give some advice. 

I don't know who will be writing the will, but a quick google shows lots of unregulated firms writing wills linked to air ambulances. You might as well get someone from the pub to give your parents IHT advice. IHT and trusts is complicated and fact dependent.

As an example of unregulated scammers selling trusts, get a cup of tea and have a read of this: https://taxpolicy.org.uk/2026/03/13/mp-estate-planning-trust-misselling-investigation/

RAS

@GJL2618, your previous post indicates that the trust was created some years ago and you did not return to reply to the questions.

Has this trust been registered with HMRC? If not, there could be penalties to pay and if it's over 10 years old, an unpaid tax liability. There are people with substantial experience on this and other subforums but you need to get hold of the documents and start answering questions.

poseidon1

I am wondering if there is much point responding to the OP' s current post in view of their lack of response in 2024.

However, I will make the following point in the hope it will galvanise them into seeking immediate advice from a competent STEP lawyer..

All trusts other than those for charitable purposes and bare trusts, set up during lifetime of the settlors are chargeable lifetime transfers, where IHT at the 20% lifetime rate is potentially assesseable on values gifted into trust in excess of the £325k nil rate band.

OP has not indicated exactly when his parents put their property in trust, but if this was over the period the £325k NRB has been extant and the property was valued at around £700k at the time then the excess of £50k above the two £325k NRBs, was liable to 20% IHT rate ( ie a £10k IHT tax charge).

Furthermore, at each 10th anniversary of the trust there is a decennial charge at 6% of the house value exceeding the two NRBs. OP has indicated house has jumped £100k in value since 2024. If that were the 10th anniversary valuation then £150k excess liable to the 6% charge ie tax of £9k.

If none of the above were alarming enough, then there is the further point that throughout the period the parents continue to occupy the property, it remains in their estate for IHT purposes and therefore reportable for probate purposes. On 2nd death of parents there is therefore a £1.3 million taxable estate ( based on OP's current numbers) where minimally £300k liable to 40% tax, in addition to the IHT liabilties mentioned above.

However the exposure could be worse if the exact terms of the trust on death of the final parent eliminates the possibilty of their residence nil rate bands being available - ie the possibilty of an ongoing discretionary trust , rather than cessation of the trust on 2nd death.

Frankly this arrangement has all the hallmarks of an unregulated will writing firm with no idea of the IHT implications they triggered on its creation.

If in the unlikely event this was solicitor created, then the OP's family at least have the possibity of the entire arrangement being unwound with the law firm bearing the entire cost of doing so, in view of the clear evidence of gross negligence.

Remains to be seen whether the OP pays any attention to this post but if not hopefully the information will be useful to others.

Keep_pedalling

The trust was almost certainly a terrible idea, it saves no IHT as your parents still occupy their home, and if the trust was created prior to the introduction of the residential NRB it creates an additional potential IHT liability of £140k.

When exactly was this trust created?