Published on: 1st December 2025

How a Trust Can Save Partners Up to £130,000 in Inheritance Tax

Inheritance Tax (IHT) is often called the “voluntary tax” because with smart planning, much of it can be avoided. Yet thousands of families pay more than they need to—especially unmarried couples, who don’t enjoy the same tax breaks as married couples or civil partners. The good news? A simple trust arrangement could save up to £130,000 in tax.

(Please note that for simplicity this article ignores the Residence Nil Rate Band Allowance)

Why Unmarried Couples Are at Risk

Under UK law, married couples and civil partners can transfer assets between each other free of IHT. They also share a transferable nil-rate band, meaning the surviving spouse can inherit the unused allowance of £325,000, doubling the tax-free threshold to £650,000. Unmarried partners don’t have this benefit. When one partner dies, everything above £325,000 left to the survivor is taxed at 40%. On the second death, the combined estate is taxed again—often creating a huge bill.

Example:
Two partners each own £400,000. If they leave everything to each other and then to their children, the IHT bill could exceed £200,000.

The Trust Solution

 A Nil Rate Band Discretionary Trust can change the game:

• On the first death, up to £325,000 (the nil-rate band) goes into a discretionary trust.
  
  
• The trust benefits the surviving partner and other beneficiaries (children, grandchildren).
  
  
• These assets are outside the survivor’s estate, so they aren’t taxed again later.

Result: In the example above, the IHT bill drops from £208,000 to £78,000—a saving of £130,000.

Why This Works

The trust “freezes” part of the estate outside the survivor’s taxable estate. The surviving partner can still access funds, but they won’t be counted for IHT purposes on their death. This is especially valuable for couples with combined estates over £650,000.

Extra Benefits

• Flexibility: Trustees decide how and when funds are distributed.
  
  
• Protection: Assets in trust are shielded from creditors and disputes.
  
  
• Control: You can set rules for passing wealth down generations.

Important Considerations

•  Professional advice is essentials.
  
  
• Legal and administrative costs apply—but the savings often outweigh them.

For unmarried couples, a discretionary trust is a powerful tool to reduce inheritance tax, protect wealth, and provide flexibility for future generations. With potential savings of up to £130,000, it’s worth exploring with a Casey & Associates Consultant.

If you would like to speak with one of our Consultants to discuss any of the issues raised in this article or any other Estate Planning topic please telephone 01732 868190 or click here.

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