There are many people who have estates above both nil rate bands who will still have an IHT liability on any amounts above £624,000 or single people who only have the single allowance. If this is the case, there are still many options open in relation to placing capital into trust.

There are many different types of trusts that can be used. Generally speaking you can go down the Absolute Trust or the Discretionary Trust route.

The Absolute Trust falls under the rules of a Potentially Exempt Transfer (PET). Should you survive for seven years then the amount gifted into trust is outside the estate for IHT. The downside of this route is the word Absolute.

Once this type of trust is set up there is no flexibility to add or remove beneficiaries, and once a beneficiary has reached 18 years of age, he or she has a right to his or her share of the trust fund.

A Discretionary Trust is more flexible and allows the trustees to decide who will ultimately benefit, and when they receive trust proceeds. This type of trust falls under the Chargeable Lifetime Transfer rules and has some tax implications. After seven years any trust proceeds are deemed outside the estate as with the PET.

There could be a tax liability on every 10th anniversary of the trust's commencement and when money leaves the trust. As well as the 10 year tax there could be an immediate tax of 20 per cent.

You should also be aware that once money is gifted into a trust generally you have lost access to the capital and income. There are some exceptions to this rule such as a Discounted Gift trust or a Gift and Loan Trust.

A Discounted Gift trust allows you access to a regular income in exchange for placing capital into this trust. You lose access to the capital but retain the right to the income.

There is also a potential Discount for IHT typically of 45 per cent of the capital invested depending on your age and underwriting. As an example £100,000 invested would generate a regular withdrawal of £5,000 per year paid monthly and £45,000 would potentially be outside the estate for IHT.

When using a Discretionary Trust, if the value of the discounted gift, together with any other chargeable transfers made within the previous seven years, exceeds the then current nil rate band (NRB), there will be an immediate IHT charge on the excess. The rate of tax is expressed as one half of the current 40 per cent rate, therefore being applied at 20 per cent.

A Gift and Loan Trust allows you access to the capital but any growth made on the fund is outside the estate for IHT purposes. You can have a regular payment of five per cent per year over 20 years or access to any capital upon demand. Any capital invested remains in the estate for IHT purposes. This may be more suitable for people who cannot afford to give away capital but do not want their estate to increase and want some degree of control if they required their capital in the future.

This is a very brief overview. Tax Treatment depends on the circumstances of your own personal situation.

This information is provided based on our current understanding of the current legislation in place that could be subject to change in the future.

It is important that you take professional advice when considering any of these options as once a trust is set up it is very difficult to unwind.

If you require further information or would like a free fact sheet, call 01226 381001.