Two things have already reshaped the inheritance tax conversation this year: the £2.5 million cap on business and agricultural relief that took effect on 6 April 2026, and the pension changes expected from April 2027. Sitting behind both, and easy to overlook, is the frozen nil rate band. It has stood at £325,000 since 2009/10, and with the residence nil rate band and its taper threshold now frozen until 2029/30 too, fiscal drag is quietly pulling more clients into the IHT net each year. Trusts are the thread running through all three issues, and worth revisiting with clients now.

Frozen Bands Mean More Estates Are Now in Scope

The nil rate band remains £325,000 per individual, unchanged for over fifteen years. The residence nil rate band adds up to £175,000 where a main residence passes to direct descendants, giving a combined allowance of up to £500,000 per person, or £1 million for a couple using both sets of allowances. All three figures, including the £2 million RNRB taper threshold, are frozen until 5 April 2030. After that the current default is for them to rise with CPI, though that could still change at a future Budget. Until then, rising asset values do the rest of the work.

Trusts Can Rescue a Tapering RNRB

Where an estate exceeds £2 million in net value, the RNRB is withdrawn at £1 for every £2 over that threshold. A lifetime gift into trust, structured correctly, can bring a taper-affected estate back under £2 million and rescue an otherwise-lost allowance. It is a genuinely underused piece of planning, worth considering for anyone whose estate is edging over that £2 million line.

The Trust Tax Mechanics Need Proper Consideration

Gifts into most trusts are chargeable lifetime transfers rather than potentially exempt transfers, so an immediate lifetime charge of up to 20% can apply above the settlor’s available nil rate band. If the settlor dies within seven years, the transfer is reassessed at death rates, with taper relief reducing the tax due (not the value of the gift) on a sliding scale from 20% relief at three years to no charge at seven. Trusts also sit within the relevant property regime: a 10-year periodic charge, capped at a maximum effective 6% of trust value, plus exit charges when capital leaves between anniversaries. None of this rules trusts out, but the numbers need modelling properly before a client commits.

The BPR and APR Cap Still Leaves a Role for Trusts

For those already aware of the 6 April 2026 BPR and APR changes, there’s a further layer worth considering. Trusts have their own £2.5 million allowance for qualifying business and agricultural property, separate from the settlor’s personal £2.5 million cap, refreshing at each 10-year anniversary. Multiple trusts settled by the same person after 30 October 2024 share a single allowance rather than each getting a fresh one, so timing and structuring still matter but opportunities for planning are there.

Pension-Linked Trusts Need Revisiting Ahead of April 2027

For those looking ahead to the pension changes expected from April 2027, existing spousal bypass trusts built around pension death benefits deserve a second look. They were often built around an exemption that is being removed, but that doesn’t make the trust redundant. Its purpose shifts, from tax shelter towards control and protection: keeping funds outside a beneficiary’s own future estate, and shielding them from divorce, bankruptcy, or other risk to capital. If any of this resonates with you, get in touch and I’d be happy to talk through any planning you may require.

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This article is general information only and does not constitute legal or tax advice specific to any client’s circumstances. The nil rate band, residence nil rate band and BPR/APR figures reflect current law as at August 2026. The pension changes referred to are still progressing through Parliament and their final detail may change before implementation in April 2027. Please get in touch if you would like to talk through how any of this applies to you or your client.