Jake Usher
TimelineTony Davies
AberdeenWith IHT receipts climbing year on year, pension rules changing from April 2027, and the nil-rate band frozen until 2031, the pressure on advisers to deliver effective estate planning has never been greater. In this session, Tony Davies, Technical Engagement Consultant at Aberdeen, walked through the core mechanics of trust-based IHT planning, from understanding nil-rate bands to the critical question of sequencing when multiple trusts are in play.
What we covered
Tony opened with the commercial and regulatory backdrop driving estate planning up the agenda, before walking through the key allowances, the distinction between PETs and CLTs, the main trust structures advisers are using, and the session's headline insight: why the order in which you establish multiple trusts can make thousands of pounds of difference at the 10-year periodic charge.
The estate planning backdrop
Why IHT is capturing more estates, and how pension and business relief changes are reshaping the planning landscape for advisers right now.
Allowances and exemptions
A practical overview of the nil-rate band, residence NRB, annual exemption, and normal expenditure out of income, including where advisers often go wrong.
PETs vs CLTs
How gifts are classified depending on where they go, what that means for reporting to HMRC, and how initial, periodic and exit charges work in practice.
The main trust structures
Gift trusts, loan trusts, discounted gift trusts, and flexible reversionary trusts: which clients each suits and the key practical considerations for each.
Why sequencing matters
When a client needs multiple trusts, the order of establishment directly affects the periodic charge at year 10. Tony worked through three scenarios showing a saving of over £13,000 from the same assets.
Process and reporting
The HMRC reporting obligations advisers need to have in place, including IHT100 forms, the TRS, and why back-office diary systems for 10-year anniversaries are now essential.
The estate planning backdrop
Tony opened by framing the current moment as genuinely significant for financial advisers. The baby boomer generation holds the largest share of UK wealth, and that wealth is beginning to move. An estimated £7 trillion will pass between generations over the next 30 years, and advisers who are not already engaged with clients' heirs risk watching those assets walk out the door.
The regulatory and fiscal backdrop is also shifting fast. Business Relief and Agricultural Relief rules changed in April 2026. From April 2027, pensions will form part of the taxable estate. And the nil-rate band, unchanged since 2009, is now frozen until 2031. Tony was clear: these changes are making more people seek advice, many for the first time.
"Problems always create opportunities. There has never been a better time to be a financial adviser."
Tony Davies, Aberdeen
Tony also raised a practical business risk. Research suggests there is around a 60% chance of losing assets under management when a client dies, simply because the beneficiaries do not know the adviser. Engaging with the next generation before that happens, whether through family linking on platforms or direct conversations, is now a commercial necessity as much as a planning one.
The allowances at a glance
Tony ran through the current IHT allowances for 2026/27, noting that while the headline figure of £1 million sounds generous, the qualifying conditions narrow its application considerably for many clients.
Nil-rate band
£325,000, unchanged since 2009 and frozen until April 2031. Had it risen with CPI it would now exceed £500,000.
Transferable NRB
Up to a further £325,000 can transfer between spouses or civil partners, giving a potential combined band of £650,000.
Residence NRB
£175,000 per person (transferable), but only if the property passes to direct descendants and the estate does not exceed £2 million.
Annual exemption
£3,000 per year, introduced in 1986 and never increased. Small and limited, but still a useful baseline for regular gifting plans.
Normal expenditure out of income
Potentially unlimited, but Tony urged caution. Gifts must be regular, documented, and from true income. HMRC decides whether it qualifies, and only after the client has died.
Business and agricultural relief
Amended from April 2026. Clients with AIM portfolios or business interests now access only 50% relief above the £1 million threshold.
Tony flagged a trap that advisers often miss: the incoming pension changes from April 2027 could push estates that were previously under the £2 million RNRB threshold above it, eroding the residence nil-rate band and creating an unexpected increase in IHT liability. Full estate reviews ahead of that date will be essential for many clients.
PETs vs CLTs: what matters and when
When a client gifts assets, the tax treatment depends on where those assets are going. Tony distinguished between the two main categories.
Potentially exempt transfers (PETs)
Gifts to another individual, into a bare/absolute trust, or into a disabled trust. No tax on creation and no HMRC reporting required at the time. If the donor survives seven years, the gift is fully exempt. Bare trusts are treated as PETs, but beneficiaries gain access to the funds at 18 (or 16 under Scots law), which limits their suitability for many clients.
Chargeable lifetime transfers (CLTs)
Gifts into discretionary trusts or most interest-in-possession trusts sit within the relevant property regime. These can attract an initial charge at settlement, periodic charges at each 10-year anniversary (capped at 6% of the excess over the available NRB), and exit charges when capital is distributed to beneficiaries.
Reporting to HMRC is required via IHT100 forms. For cash and quoted stocks and shares the threshold is the full NRB of £325,000. For other assets, including an existing investment bond being assigned into a discretionary trust, the reporting threshold drops to 80% of the NRB, currently £260,000. Tony's advice: if you are creating a trust you will be registering it on the Trust Registration Service anyway, so do the reporting correctly from the start.
The main trust-based planning options
Tony focused on three trust structures that advisers are most likely to encounter when building IHT strategies. Each serves a different client profile depending on whether access to capital or income is a requirement.
Discretionary gift trust
Best for clients who can afford to permanently give up access to capital. After seven years the gift sits fully outside the estate. The settlor acts as a trustee and retains control over when beneficiaries receive distributions.
Loan trust
The settlor loans cash to the trustees rather than gifting it. Because it is a loan and not a transfer of value, there is no CLT and the NRB is unaffected. All growth is immediately outside the estate. The outstanding loan remains in the estate but can be waived, left to a surviving spouse, or gifted later.
Discounted gift trust
For clients who need a regular income stream but want to reduce their estate immediately. An actuarial discount is applied at outset based on life expectancy, reducing the value of the gift and the CLT. The gifted portion falls outside the estate after seven years.
Tony noted that the investment wrapper of choice for most discretionary trusts remains the investment bond, given its favourable income tax and CGT profile. However, advisers need to track the 10-year periodic charge carefully. If 5% tax-deferred withdrawals have been taken, these reduce the available NRB when assessing the charge, and triggering a chargeable event gain inside the trust can quickly become complex to unwind.
Why the order of gifting matters
This was the part of the session Tony described as genuinely underappreciated in practice. When a client establishes multiple trusts, each subsequent trust's periodic charge calculation is affected by what came before it, because earlier CLTs reduce the NRB available to later trusts. Get the order wrong and the overall IHT bill at the 10-year anniversary can be thousands of pounds higher than it needed to be.
Tony illustrated this with a worked example. Brian has £600,000 to invest across three trusts: a loan trust (£200,000), a DGT with a 50% discount (£200,000, so £100,000 CLT), and a gift trust (£200,000). All three grow to £400,000 at the 10-year anniversary. Assuming an NRB of £366,000 and no previous CLTs, the total periodic charge varies significantly depending on the order of establishment.
| Order | Trust 1 | Trust 2 | Trust 3 | Total charge at 10 years |
|---|---|---|---|---|
| Worst | Gift trust | DGT | Loan trust | £21,120 |
| Middle | Loan trust | Gift trust | DGT | £13,080 |
| Best | Loan trust | DGT | Gift trust | £8,040 |
The logic behind the optimal order: the loan trust generates no CLT, so it uses none of the NRB and leaves the full band available to the next trust. The DGT carries a smaller initial gift than the gift trust because of the discount applied at outset, so it goes second. The gift trust, which creates the largest CLT, goes last. The saving between worst and best in Tony's example was £13,080 from an identical set of assets.
"It's always better to do something than nothing. But if you're going to do multiple trusts, the order matters enormously. Get that wrong and you've cost your client real money."
Tony Davies, Aberdeen
Tony's rule of thumb for sequencing: exempt transfers first, then loan trusts, then CLTs (discretionary and most IIP trusts), and PETs last. He also flagged the 14-year rule, reminding advisers that a CLT followed by a failed PET within seven years can have compounding consequences on the periodic charge for an existing discretionary trust.
Reporting and getting the process right
Tony closed the technical content with a call to action on process. HMRC are now actively writing to trustees to ask whether the 10-year anniversary has been reached and whether a periodic charge should have been reported. Advisers who do not have a back-office diary system flagging these events are exposed to difficult conversations with clients when the letter arrives.
Key reporting forms to have in place: IHT100a for gifts into trust, IHT100c for exit charges, and IHT100d for periodic charges. Reporting is required when the notional transfer used in the IHT calculation exceeds 80% of the NRB, even if no tax is ultimately due. For loan trusts, the outstanding loan cannot be deducted for reporting purposes. For DGTs, the market value at the 10th anniversary includes the recalculated discount.
On the pension planning side, Tony's advice for the period before April 2027 is straightforward: identify which clients are most exposed, review nominations and wills, and consider whether the overall plan still holds once pensions are factored into the estate. For clients already drawing pension income, consider whether that income could be structured to qualify as normal expenditure out of income, and if so, document it rigorously from the outset.
Key takeaways
IHT is a growing problem
Frozen NRBs, pension rule changes, and BR/AR reforms mean more estates are caught and the bills are getting bigger. This creates real demand for adviser input.
Trusts are back on the agenda
After years of declining use, trust-based planning is becoming central again. Upskilling your team now, before the volume of enquiries increases, puts you in a strong position.
Order of gifting is not optional
When multiple trusts are involved, establishing them in the wrong sequence can cost clients thousands at the 10-year periodic charge. This is a planning decision, not an admin detail.
Engage the next generation now
With a 60% chance of losing AUM on client death, building relationships with heirs and beneficiaries is a business development priority, not a nice-to-have.
Build a process for 10-year reviews
HMRC are proactively contacting trustees about periodic charges. A back-office diary system to flag 10-year anniversaries is essential, not optional.
Collaborate with solicitors and accountants
They often are not aware of the full suite of packaged trust and multi-wrapper solutions available on modern platforms. There is a real opportunity to build referral relationships here.
This session was presented by Tony Davies, Technical Engagement Consultant at Aberdeen, and is based on Aberdeen Group's understanding of UK law and HMRC practice as at May 2026. Tax and legislation are subject to change. Tax treatment depends on individual circumstances. The content is designed as educational support for authorised advisers and should not be relied upon by retail clients. Figures used in examples are for illustrative purposes only. The value of investments can go down as well as up. Aberdeen Platform Limited is registered in Scotland (SC180203) at 1 George Street, Edinburgh EH2 2LL and authorised and regulated by the Financial Conduct Authority. Any advice given to clients remains the responsibility of the advising firm.
