August 2022 - Tees Law

How inflation impacts your finances

Posted on 8 August 20229 July 2025 by Sophie Soraf

Following a sustained period of historically low inflation, the recent upsurge in price pressures has vividly highlighted the impact inflation can wreak on people’s finances. A sharp rise in the cost of living effectively takes a large chunk out of the purchasing power of money and thereby erodes the real value of cash savings. It is therefore important to understand the concept of inflation and the impact it has on your wealth. Here, we consider these issues and look at the potential benefits of longer-term investment as a way of protecting your money from the effects of inflation.

Inflation is a term used to describe the increase in the general level of prices for goods and services over time, with the rate of inflation quantifying how quickly prices are rising. There is no single approach to measuring inflation, partly as figures differ depending upon which specific bundle of goods and services are included in the calculations. However, the Office for National Statistics (ONS) publishes a number of consumer price indices each month which provide its latest estimate of inflationary trends. The UK’s official headline measure is the Consumer Prices Index (CPI) 12-month rate which compares prices in the current month with the same period a year earlier.

Measure inflation

A good way of understanding how a price index works is to think of an extremely large shopping basket containing a mix of the various goods and services a typical household buys – the price index basically shows changes to the overall cost of that basket over time. For the CPI, prices for around 700 things people regularly buy are recorded each month. These cover a variety of items including a loaf of bread and ready-meals, the cost of a cinema ticket and a pint at the local pub, as well as larger items such as a holiday and a car. To calculate the index, ONS compares the current cost of the basket with what it was a year ago – the change in price level is the annual rate of inflation.

The impact of high inflation

A healthy economy generally requires inflation to be low and stable. While a small amount of inflation is considered helpful, high and unstable rates can cause extreme economic difficulties as it erodes the purchasing power of household finances and makes it difficult for people to plan how much they can spend, save or invest. In the UK, the government has a 2% target for how much prices should go up each year with the Bank of England tasked with keeping the figure around that level. The Bank’s principal tool for maintaining a low and stable inflation rate is to raise or lower interest rates.

What is “bank rate”?

Bank Rate is the most important interest rate in the UK and has a significant impact across many aspects of the economy. It is sometimes referred to as the Bank of England Base Rate and is set by the central bank’s nine-member Monetary Policy Committee. The rate directly influences other interest rates, including the lending and savings rates high street banks and building societies offer their customers. The level of the Bank Rate therefore ultimately determines both the cost of mortgages and loans, and how much people can expect to receive on savings held in deposit-based accounts.

Interest rates and inflation

Economic theory shows there is an ‘inverse’ relationship between inflation and interest rates: in other words, when interest rates are low inflation tends to rise, and when rates are high inflation tends to fall. This is because high interest rates make it more expensive for people to borrow money and encourages them to save, which means they typically spend less on goods and services, and this results in prices rising more slowly; and vice versa. So if prices are deemed to be increasing too rapidly, the Bank of England will typically raise interest rates in order to try to slow inflation down.

Purchasing power

When the rate of inflation is low, its impact can seem relatively modest, but when inflation is high it can drastically erode the purchasing power of money. For example, if the rate of inflation is 1%, then the price of a loaf of bread that cost £1 a year ago would now be £1.01. However, if inflation is running at 10%, the price of the same loaf would rise to £1.10. In other words, households can buy less for the same amount of money or, to put it another way, money has effectively lost value.

Inflation makes things more expensive over time.

Impact on savings

Inflation has a similar devaluing effect on deposit-based savings balances. For instance, a saver who held £10,000 in a building society account a year ago earning a rate of 1%, would receive £100 in interest and thereby see their total balance rise to £10,100. However, if inflation was running at 10% then the same £10,000 worth of goods and services that could have been bought a year earlier would now cost £11,000. So, although the saver may feel they have earned £100, when factoring in the effects of inflation, the value of their cash savings has actually declined by £900 in real terms.

Investment potential

While cash savings will always be important, particularly as a source of rainy-day funds, in the current economic climate people holding a large proportion of their assets in cash look set to lose money in real terms. For anyone planning to put money aside for a number of years, it may therefore be worth considering investments as a potential way to protect capital from the effects of inflation. Although past performance is no guarantee of future profits, stock market investments have tended to produce returns that could potentially inflation-proof money over the longer term, providing savers are prepared to take some degree of risk.

Tax-efficient investments

As well as potentially offering protection from inflation, some investment products also enjoy significant tax advantages that make them particularly attractive investment propositions. Both pensions and stocks and shares ISAs fall within this category.

Pensions

Investing via a pension is one of the most tax-efficient methods of saving for the long term as investors receive tax relief at their highest marginal rate of Income Tax on all contributions made subject to annual and lifetime allowances. This means that some of your earnings which would have gone to the government as tax are instead diverted to boost your pension pot. This effectively results in it costing you less to save more in a pension plan.

Stocks and shares ISAs

Individual Savings Accounts (ISAs) are another tax-efficient investment option and provide greater flexibility than a pension as they allow access to your money before the age of 55. Investors can save up to £20,000 each tax year in a stocks and shares ISA with the money having the potential to grow free of UK Income Tax and Capital Gains Tax. These products can be a particularly good way to save for medium or long-term financial goals, such as a wedding or new car.

This graph shows the effect of a 2% inflation rate on £100 over a 40-year period with cash assumed to earn no interest – maybe kept under your mattress! A growth rate of 7% per annum is assumed for equities but is for illustrative purposes only and not an indication of future performance. After 40 years, the initial £100 can only buy goods that would be worth just under £45 at today’s prices, compared to an equity investment which would have the purchasing power of £704.

Obviously, very few of us would keep cash under the mattress, but even with cash deposits earning 1% a year, £1 would only be worth £1.49 after 40 years if held in cash, or over 10 times that amount if invested in equities, assuming a growth rate of 7% p.a.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Can schools ban sausage rolls? Understanding healthy eating policies in schools

Posted on 5 August 20228 July 2025 by Sarah O'Sullivan

A primary school in Bradford found itself under fire from some parents who have called the school’s new healthy eating policy “ridiculous.”

The school banned items such as sausage rolls, pork pies and squash from packed lunch boxes in a bid to encourage healthy living at an early age. The policy is a whole school policy impacting on all pupils who attend. But it does raise the question, can schools really dictate what children eat during the day?

Tees’ Polly Kerr is an education lawyer advising parents on education matters such as: exclusions, appeals, special education needs and education health and care plans. In this article, Polly explains more about lunchbox rules.

In January 2015, the government introduced a new set of rules and regulations, which governed the type of foods that schools could provide to pupils during the school day and it became the responsibility of the school to ensure that they met (and continue to meet) the School Food Standards practical guide updated May 22. These include the following:

1 or more portions of vegetables or salad as an accompaniment every day
at least 3 different fruits, and 3 different vegetables each week
an emphasis on wholegrain foods in place of refined carbohydrates
an emphasis on making water the drink of choice:
limiting fruit juice portions to 150mls
restricting the amount of added sugars or honey in other drinks to 5%
no more than 2 portions a week of food that has been deep fried, batter coated, or breadcrumb coated
no more than 2 portions of food which include pastry each week

Interestingly the School Food Standards regulations do not apply to academies established between September 2010 and June 2014 but it is recommended that they be used as a guide and adopted voluntarily by these schools.

There are some exceptions to these rules, such as parties or celebrations, fund-raising events, rewards for achievement or good behaviour, food used for teaching food preparation or cookery skills and on an occasional basis by parents or pupils. So the odd chocolate bar for celebrating a classmate’s birthday is not prohibited by the regulations.

Schools in England must also provide free drinking water to all pupils at all times whilst they are in school and are prohibited from selling drinks with added sugar, chocolate or sweets in vending machines.

Whilst the government have tightened the rules around food supplied by a school in a bid to make children healthier, packed lunches brought in from home are not caught by the regulations.

However, schools are allowed to set their own policies regarding the types of food consumed on their premises during the school day and, provided that the policies implemented by the schools do not breach the school’s obligations under the Equality Act 2010 or any other relevant legislation, schools are free to determine what their pupils bring to school to eat during the day and, if their policies allow, to confiscate or challenge the inclusion of prohibited items within packed lunches.

This article was originally published in November 2017 in Salad Days (http://www.saladdaysmag.uk/).

To check if your child can get free school meals in England and apply to your local authority website – visit Gov.uk

Ideas for your child’s packed lunch:

NHS guidance – Healthier lunchbox recipes
BBC good food – School packed lunch inspiration

Use your will to save inheritance tax

Posted on 4 August 202210 July 2025 by Sophie Soraf

The question of how to structure your will is a complex one involving consideration of a range of different factors. Married couples with significant assets should consider the option of using an appropriate will trust on first death due to the tax planning opportunities available.

What is the inheritance tax nil rate band?

The inheritance tax “nil rate band” is the threshold below which no inheritance tax is payable. In recent years the nil rate band rules have become ever more complex with the introduction of three new elements alongside the standard nil rate band; they are:

transferable nil rate band
residence nil rate band
downsizing relief.

The complexity and quirks of the legislation offer many opportunities to save inheritance tax through (amongst other things) an appropriately structured will.

Please note: references to spouses and married couples include civil partners and it’s assumed that all the persons in the examples are UK domiciled. Depending on your circumstances there may be other tax and/or legal issues to consider so it’s always important to take advice.

Married couples where one or both of the couple have previously been widowed

Married couples where one or both of the couple have previously been widowed may be able to save significant inheritance tax by maximising their ability to transfer the unused nil rate bands of their late spouses (known as the “transferable nil rate band”).

Example 1:

Bob and Mavis, a married couple, have both previously been widowed. Bob’s late wife, Gill, died in 2008 and Mavis’s late husband, Jim, died in 2009. Both Gill and Jim left their estates to their respective surviving spouses.

Bob and Mavis each have assets worth £650,000 (which they own separately). Unusually, they do not own and have never owned their own homes (so residence nil rate band does not apply to them, more on which below).

They would like the survivor of them to inherit the assets of the first to die and on the second death for the total estate to be divided equally between Bob’s son and Mavis’ daughter. In the circumstances the full standard nil rate band applies to both of them and to their late spouses’ estates.

Bob dies in 2019 and leaves his entire estate to Mavis. Mavis dies in 2021, leaving everything to her daughter and Bob’s son in equal shares. For simplicity, assume no changes in asset values between their deaths.

The inheritance tax position: On Bob’s death there will be no liability for inheritance tax because of the spouse exemption. On Mavis’ death her executors will be able to use her nil rate band (£325,000) and claim a transferable nil rate band (also £325,000). However, even though she has now been widowed twice, she can only claim one transferable nil rate band.

Therefore, the inheritance tax liability on Mavis’ death will be £1.3 million – £650,000 x 40% = £260,000.

Example 2:

The facts are the same as in Example 1, except that Bob and Mavis make wills leaving the available nil rate band of the first to die and any transferable nil rate band from that person’s late spouse to a nil rate band discretionary trust.

On Bob’s death his entire estate (£650,000) will pass to the nil rate band trust. Mavis is included as a beneficiary of the trust so can benefit from funds if required at the discretion of the trustees. There is no inheritance tax liability on Bob’s death because of the nil rate band and transferable nil rate band available to his estate (his own nil rate band and the transferable nil rate band from his late wife, Gill.)

On Mavis’s death her estate of £650,000 will also be free from inheritance tax because her executors can claim her own nil rate band and the transferable nil rate band from her late husband, Jim. Hence there would be no inheritance tax on the death of either Bob or Mavis.

Mavis’s estate is left to the two children and the trustees of the discretionary trust could then decide to wind up that trust and appoint the assets to the two children.

Please note: There would be a small inheritance tax charge on the discretionary trust, which will vary depending on how long the trust runs for. In the example, if the trust was wound up shortly after Mavis’s death this charge would be approximately £4000. This would still mean an overall inheritance tax saving of approximately £256,000!

It should also be noted that this approach could have saved significant tax even if only one of them had previously been widowed (whichever one of them died first).

It is also the case that there are other reasons why the first of them to die might want to leave some or all of their assets to some form of will trust, e.g. to protect the intended inheritance of their own child. These issues are not considered here for simplicity but you can contact us to discuss any of these issues.

Standard nil rate band has been frozen until at least April 2026

The amount of the standard nil rate band has been frozen at its current level (£325,000) since 6 April 2009 and the government has announced that it will remain at that level until at least 5 April 2026.

Many married couples do not use the nil rate band on the death of the first of them to die, taking advantage of the transferable nil rate band. However, the freezing of the nil rate band means that the benefit of the transferable nil rate band can often be eroded by inflation. A nil rate band trust can avoid this erosion so could save tax on second death (assuming the nil rate band does not increase significantly in future).

Example 3:

Tony dies in 2021 leaving his entire estate to his wife, Georgina. This includes an investment portfolio worth £325,000 (which Tony was advised had strong growth potential). Neither of them has previously been widowed and their full nil rate bands of £325,000 are available.

Georgina dies in 2025 leaving a chargeable estate of £1.5 million, which is inherited by their children. This includes the investment portfolio she inherited from Tony, which is now worth £425,000.

While the investment portfolio has grown by £100,000 since Tony’s death (and so will increase the inheritance tax charge on Georgina’s death), the nil rate band remains unchanged.

Example 4:

The facts are as per Example 3 except that Tony leaves a nil rate band discretionary trust in his will. After his death the decision is taken to fund the trust by transferring the investment portfolio to it. Under the terms of the trust, Georgina can benefit if required at the discretion of the trustees. The portfolio is left in the trust.

The £100,000 growth on the investment portfolio is now held in the trust and is outside of Georgina’s estate for inheritance tax. This will achieve an inheritance tax saving of £40,000 compare to example 3. There would be some capital gains tax issues to consider.

Clawback rules

In 2017 the Government introduced an additional nil rate band for people who leave an interest in their home to certain qualifying beneficiaries (including children). This is known as the residence nil rate band. The rules for residence nil rate band are very complex so specialist advice should always be taken.

One point to note is that the residence nil rate band starts to be clawed back once your estate exceeds £2 million. The clawback rules are very complicated, but will eliminate residence nil rate band altogether, once the estate reaches a maximum of £2.7 million (depending on your circumstances, residence nil rate band could be eliminated before that level). Assets that qualify for business property relief or agricultural property relief are included when working out whether clawback applies.

Some married couples can reduce or even eliminate the impact of the clawback by using a nil rate band discretionary trust.

Example 5:

Martha and Henry are married and have a combined estate of £2.7 million, divided equally between them. Neither of them has previously been widowed and both have their full nil rate band of £325,000 available. Their estate includes their home worth £900,000. On Marta’s death in 2018 she leaves her entire estate to Henry. Henry dies in 2021, leaving his estate to their two children.

Because Henry’s estate (including the assets inherited from Martha) is at the maximum clawback threshold, no residence nil rate band applies.

Example 6:

The facts are the same as example 5 except that Marta leaves her available nil rate band to a discretionary trust. Henry’s estate is now worth £2.375 million, meaning that only a partial clawback of the residence nil rate band applies. Henry’s executors will be able to claim a residence nil rate band of £187,500, saving inheritance tax of £75,000.

Please note: The impact of the residence nil rate band clawback rules will become more widely felt over the next few years following the government’s decision to freeze the clawback threshold at £2 million until at least 6 April 2026. Many estates will become subject to a full or partial reduction in the residence nil rate band assuming asset values rise in the interim. Again, a nil rate band discretionary trust can mitigate this in appropriate circumstances by keeping down the value of the survivor’s estate.

Downsizing relief

Residence nil rate band may not be available (or fully available) where you sell your home. A common example is where elderly clients sell their home and leave the property market altogether or downsize late in life to funds care needs.

Where you sell your home or downsize on or after 8 July 2015, there is an alternative relief called downsizing relief which may be available instead of or alongside any remaining residence nil rate band. However, the rules for this are extremely complex and you should take advice to make sure it will be available. The £2million clawback threshold mentioned above, also applies to any downsizing relief so, again, there are opportunities to reduce or eliminate the impact of clawback in appropriate cases.

Impact of equity release on nil rate band

Decisions about equity release or other borrowing secured on your home can impact on the amount of residence nil rate band available. It’s important to take both legal and wealth management advice when making decisions about your home, where your estate is or may be subject to inheritance tax.

Will trusts can help you protect your loved ones

Posted on 2 August 202210 July 2025 by Sophie Soraf

Trusts often get bad press, being portrayed by some as vehicles to help the super-rich to avoid tax. While trusts can legitimately save tax for many people (most of whom are not super-rich!) their purpose is often to protect the position of loved ones.

Making a will involves consideration of many different factors and you should always consider, not only who you would like to benefit but how they should benefit. While the simplicity of outright giving will be appropriate in some circumstances, there are situations in which it may be more appropriate to protect the beneficiaries with some form of will trust.

What is a will trust?

A will trust can be thought of as a gift ‘with rules attached’. If you leave your assets to someone absolutely, you give total benefit and control of the assets given to them. They will own the assets and have the right to do with them as they wish. In contrast, where you leave assets to a will trust, you transfer ownership to trustees, who are charged with managing the assets for the benefit of beneficiaries. The will sets out who the trustees and beneficiaries are and the rules the trustees have to follow.

Some will trusts can be very simple, for example, if you leave assets to your trustees to hold for the benefit of your child when they reach age 18. It’s also possible to create more flexible trusts that give trustees discretion to decide who should benefit from capital or income and when that should be. You can also give different beneficiaries different rights, for example giving one person the right to benefit from the income generated by an asset, or to occupy a property for a set period, and giving other beneficiaries the benefit of the asset at the end of that period.

When you die, you give away all the assets in your estate under the terms of your will (assuming you make one, which you should!). For many people, this involves a significant transfer of wealth. It’s a good idea to consider whether you’re comfortable transferring that wealth absolutely or if you would prefer to use a trust.

Who are the trustees and what do they do?

The role of a trustee is to manage the assets in the trust and to exercise any discretions they are given. Depending on the wording of the trust, beneficiaries can act as trustees. You could also appoint outsiders such as trusted family members or friends or professional trustees.

The role of trustee is very important, and (as the name suggests) you should certainly choose people you trust! It is always sensible to take professional advice on the options and the factors to consider when deciding who to appoint.

You choose the initial trustees of a will trust under the terms of your will. You can either appoint the executors named in your will or separate trustees.

How does a will trust protect my family?

There are many different forms of will trust for different purposes. The protections offered and tax consequences will depend on the type of will trust chosen and you should always take professional advice on the different options.

Here are some of the many situations where an appropriately worded ill trust can protect your beneficiaries:

Where there is more than one family

If you, or your partner, have been married before or have children from a previous relationship, you might be concerned to ensure that your assets ultimately pass to your own children or family, while also looking after your spouse, if they survive you. A will trust can help to achieve this.

Where the surviving spouse may remarry or form a new relationship

Many people worry that if they leave their assets to their surviving spouse, their children may not inherit if the survivor remarries or forms a new relationship. Even if the survivor does not give away or leave the assets to their new partner, problems can still arise. For example, the new spouse might have a claim on assets if the new marriage ends in divorce, or they might make a claim for financial provision from the estate of the surviving spouse. Again, a will trust can reduce the risk of such problems.

Where the intended beneficiaries may be at financial risk

There are many situations where wealth left to a beneficiary may not end up going where intended, or may do them more harm than good, for example:

where the beneficiary is getting divorced or going through marital difficulties, there’s a risk that the inheritance may be included or taken into account in any divorce settlement.
where the beneficiary (or their partner) is immature, reckless, bad with money or at higher than usual risk of bankruptcy (for instance if they are engaged in risky business enterprises).
For young or otherwise vulnerable beneficiaries.

A will trust can reduce the risk of such problems arising.

Where an inheritance might affect the beneficiaries’ means tested benefits

Will trusts can often prevent the loss of a beneficiary’s means tested benefits, or reduce the impact of the inheritance on the benefits available.

Where an inheritance might complicate the beneficiaries’ tax position

An outright inheritance might complicate the beneficiary’s tax affairs if, for instance, they pay income tax at a high rate or their estate will be liable to inheritance tax on their death. While this is a complex area, the flexibility of will trusts can alleviate such problems, giving scope for some of the wealth to be used in a more tax efficient manner. For example, a child with significant wealth might prefer some of the trust funds to be used for their own children instead of them. A will trust can give the flexibility to focus the estate in the most tax efficient manner, depending on the circumstances at the time.

Where substantial wealth is involved

Substantial wealth (particularly when acquired suddenly) can cause its own problems. For example, it can affect a beneficiary’s outlook on life or the attitudes of those around them or increase their tax exposure. So it’s sensible to consider using a trust when passing down substantial wealth, even where the beneficiaries do not otherwise seem in need of protection.

How are will trusts taxed?

There are important tax issues to consider with will trusts including capital gains tax and income tax. The rules are extremely complex so it’s vital that you get specialist tax advice.

Will trust case studies

We’ve set out a couple of illustrative case studies of situations where a will trust might be useful.

Will trust case study 1

Gill, aged 70, has an estate worth £800,000 including her home (which is in her sole name), which she occupies with her second husband, Brian. She has two adult children (Simon and) Beth) from her first marriage, which ended in divorce. Brian does not have significant assets and is largely dependent on Gill. Brian also has two children from a previous relationship.

Gill would like to look after Brian if he survives her, but also wants to make sure that her assets pass to her children, after his death.

If Gill leaves the assets outright to Brian, then he will decide what to do with them during the rest of his lifetime and who to leave them to after his death. If Gill is uncomfortable with this, then she could use a will trust to control what happens to her estate after her death.

Will trust case study 2

Jake is a widower with an estate worth approximately £ 5 million. He wants to provide for his three adult children, Karen, John and Steven and their children after his death. However, he knows that Karen’s marriage is in difficulty and Steven has had money problems in the past. John has a significant wealth of his own and has mentioned that a large inheritance might cause tax problems.

Again, a will trust could be used to protect the shares of Karen and Steven and give flexibility for John’s children to receive some of the trust fund instead of John, if this is more tax efficient.

Use your will to protect your business from inheritance tax

Posted on 2 August 202223 June 2025 by Sophie Soraf

People with assets that qualify for business property relief (BPR) or agricultural property relief (APR) can often save significant amounts of inheritance tax with appropriately structured wills.

BPR and APR offer valuable inheritance tax relief for qualifying assets. In some cases, only one of the reliefs applies; in others, both may be available. What is less widely known is that the structure of your will can have a major impact on the total relief available and the inheritance tax due on your death.

What is business property relief?

Business property relief applies to “relevant business property” and can, depending on the circumstances, reduce its inheritance tax value by up to 100%. The criteria are complex, so professional advice is essential to determine eligibility and to structure your interests to maximise the relief.

What is agricultural property relief?

Agricultural property relief applies to “agricultural property”. Like BPR, it can reduce the inheritance tax value by up to 100%, but the conditions for relief are different. Again, professional advice is strongly recommended.

Clients with qualifying assets, such as a business or a farm, should also consider the risk that these reliefs may be withdrawn or limited in future due to legal changes or a change in personal circumstances. The current regime is relatively generous by historical standards, but this may not always be the case.

Using Discretionary Will Trust to maximise reliefs

An appropriately structured will can help preserve available reliefs and create opportunities to maximise them. For example, clients with relievable assets can protect those assets by placing them into a discretionary will trust.

This approach is often especially beneficial for married couples. Assets left to a UK-domiciled spouse are already exempt from inheritance tax due to the spouse exemption. However, this also means that any additional reliefs (like BPR or APR) are effectively wasted if those assets are left outright to the spouse. Using a discretionary trust can avoid this issue and also enable further inheritance tax planning.

A discretionary will trust allows trustees to decide how and when to distribute assets to a class of beneficiaries, which may include the surviving spouse. The spouse can also act as a trustee and may still benefit from the trust at the discretion of the trustees. Because the assets are held within the trust rather than the spouse’s estate, they do not form part of their taxable estate. While trusts can be subject to inheritance tax charges (typically lower than personal estate charges), the overall tax savings can be substantial.

Preserving reliefs

Using a discretionary will trust on the first death can preserve valuable reliefs that might otherwise be lost if circumstances change before the second death – for example, if assets are sold or if the relief rules are altered.

Example 1: No trust – relief lost
Margery and Jake own a successful furniture business equally. When Margery dies in 2012, she leaves her £1 million shareholding (qualifying for 100% BPR) to Jake. Jake later sells the business. At his death in 2021, the proceeds (now worth £1.5 million) are held in an investment portfolio, with no BPR available. His estate is subject to inheritance tax of £600,000 on these assets.

Example 2: Discretionary trust – relief preserved
Margery instead leaves her business shares to a discretionary trust, naming Jake and their sons Ben and Nigel as trustees. After Jake’s death, the trust assets (now an investment portfolio) are distributed to Ben and Nigel and their children. There is no inheritance tax on Jake’s death in relation to the portfolio, and while the trust may incur a smaller charge, a significant tax saving is achieved.

Maximising relief on the family home

The residence nil rate band (RNRB) is an additional inheritance tax relief when the home is passed to direct descendants. However, it begins to taper when an estate exceeds £2 million—including assets qualifying for BPR or APR.

A well-drafted will using a trust can reduce or eliminate this taper.

Example 3: No trust – RNRB lost
Richard owns a business (worth £2 million, qualifying for BPR) and other assets worth £800,000. Clare, his wife, has assets worth £400,000. They own a £600,000 home jointly. Richard leaves everything to Clare in 2016. When Clare dies in 2021, her estate exceeds £2 million, so no RNRB is available.

Example 4: Discretionary trust – RNRB preserved
If Richard had left the business shares to a discretionary trust and the rest to Clare, her estate on death would be worth £1.5 million (assuming £300,000 growth). This is below the taper threshold, so RNRB and transferable RNRB from Richard would apply—saving £140,000 in tax.

Planning opportunities after the first death

The right will structure can also allow further planning opportunities after the first death.

Example 5: No trust – Relief not reused
Paul and Jenny, in a farming partnership with their daughter Gill, have a joint estate of £7 million—£4 million of which qualifies for BPR and APR. Paul dies in 2015, leaving everything to Jenny. She later leaves the farm to Gill and other assets to Karen. The inheritance tax on Jenny’s death is £940,000.

Example 6: Trust structure – Relief reused
If Paul had left the relievable assets to a discretionary trust and the rest to a life interest trust for Jenny, the trustees could have transferred £1 million in relievable assets from the life interest trust to the discretionary trust shortly after his death.

Provided Jenny survives this transfer by two years, the reliefs apply again on her death, reducing her estate’s liability to £540,000—a saving of £400,000.

Complex tax and legal issues

Trusts are subject to potential inheritance tax charges at ten-year intervals and on termination. Some transactions may also trigger capital gains tax and stamp duty, which must be weighed against the potential tax savings. Income tax implications may also arise.

Moreover, using a discretionary trust requires confidence in your chosen trustees, as they control how and when assets are distributed. You must be comfortable with not leaving assets outright to beneficiaries.

This is a complex area of law, and expert advice is essential. However, with the right planning, significant tax savings can be achieved.