March 5, 2026
By Merranti

Can You Put Your House Into a Trust to Avoid Inheritance Tax?

One of the most common estate planning questions we hear is:

“Can I put my house into a trust to avoid Inheritance Tax?”

The short answer is:
You can put your house into a trust — but it usually does not avoid Inheritance Tax in the way people expect.

In fact, in many cases, it can create additional tax charges.

In this guide, we explain:

How trusts work for Inheritance Tax (IHT)
What happens if you gift your home into a trust
The “gift with reservation of benefit” rules
The 7-year rule
When trusts may still be appropriate
The risks and common misunderstandings

First: How Inheritance Tax Works

Before looking at trusts, it’s important to understand the basics of Inheritance Tax.

For 2025/26:

The Nil Rate Band (NRB) is £325,000.
The Residence Nil Rate Band (RNRB) can provide up to £175,000 (if qualifying conditions are met).
Assets above available allowances are typically taxed at 40% on death.

If a property is part of your estate at death and your estate exceeds available allowances, IHT may be due.

This is why people often explore transferring property into trusts.

What Is a Trust?

A trust is a legal arrangement where:

Assets are transferred to trustees
Trustees hold those assets for beneficiaries
The person creating the trust (the settlor) gives up ownership

There are several types of trusts, including:

Discretionary trusts
Life interest trusts
Bare trusts

Each has different tax consequences.

If You Put Your House Into a Trust, Is It Removed From Your Estate?

This depends entirely on whether you continue to benefit from it.

The Critical Issue: Gift With Reservation of Benefit

If you transfer your house into a trust but:

Continue living in it
Do not pay full market rent

HMRC treats this as a “gift with reservation of benefit.”

In simple terms:

Even though legal ownership has changed, for Inheritance Tax purposes, the property is still treated as part of your estate.

This means:

The house is still subject to IHT on your death.
The trust structure does not remove it from your estate.

This rule prevents individuals from avoiding IHT while continuing to enjoy their property.

What If You Move Out?

If you:

Transfer the house into a trust
Genuinely move out
Retain no benefit

Then the gift may fall outside your estate after 7 years.

This is known as a Potentially Exempt Transfer (PET).

If you survive 7 years from the date of the gift, the value may fall outside your estate for IHT purposes.

However, this comes with other tax implications.

Is There an Immediate Inheritance Tax Charge?

Yes — there can be.

If you transfer your home into most types of trust (such as a discretionary trust), the transfer is treated as a chargeable lifetime transfer.

If the value exceeds the available nil rate band (£325,000), there may be an immediate 20% lifetime IHT charge on the excess.

For example:

House value: £600,000
Nil rate band available: £325,000
Excess: £275,000
20% lifetime charge = £55,000

This is often overlooked.

Are There Ongoing Trust Charges?

Yes.

Many trusts are subject to:

10-year periodic charges (up to 6%)
Exit charges when assets leave the trust

So even if the initial transfer does not trigger a large charge, ongoing IHT charges may apply.

This can make trusts more expensive than expected.

What About Capital Gains Tax?

Transferring your house into a trust can also trigger Capital Gains Tax (CGT).

If the property is:

Your main residence, Principal Private Residence relief may apply.
A second property or buy-to-let, CGT could be triggered on transfer.

Trusts also pay CGT at higher rates than individuals.

This is another layer of complexity often missed in DIY estate planning.

What About the Residence Nil Rate Band?

If your home passes directly to your children on death, the Residence Nil Rate Band (up to £175,000) may apply.

However, placing a property into certain types of trust can:

Prevent access to the Residence Nil Rate Band
Reduce available allowances

This can actually increase the eventual IHT liability.

Why Do People Think Trusts Avoid Inheritance Tax?

Much of the confusion comes from:

Old n between different types of trusts

In the UK, anti-avoidance rules are very well established.

Simply transferring your house into a trust while continuing to live there does not remove it from your estate.

When Might a Trust Still Be Useful?

Although trusts rarely “avoid” Inheritance Tax on a main home, they can still be appropriate in certain situations.

For example:

Protecting assets for vulnerable beneficiaries
Second marriage planning
Controlling how assets pass to children
Asset protection concerns
Business succession planning

Trusts are often about control and protection — not pure tax avoidance.

What About Care Home Fee Planning?

Some people consider transferring their home into a trust to avoid local authority care assessments.

Local authorities can apply deliberate deprivation of assets rules.

If they believe the transfer was made to avoid care fees, they can:

Treat the asset as still belonging to you
Include it in the means test

Trust planning does not automatically protect against care costs.

Example: Putting Your House Into a Trust While Living There

Scenario:

House worth £700,000
You transfer it into a discretionary trust
You continue living there rent-free

Result:

Gift with reservation rules apply
Property remains in your estate
Possible lifetime IHT charge if value exceeds nil rate band
Potential future trust charges

The expected “IHT saving” may not materialise.

Example: Genuine Lifetime Gift and Moving Out

Scenario:

You gift your house into trust
You move into rented accommodation
You survive 7 years

Result:

Property may fall outside your estate
However, potential lifetime IHT charge
Possible CGT implications
Loss of security and control

The practical consequences can be significant.

So, Can You Put Your House Into a Trust to Avoid IHT?

Technically, you can transfer your house into a trust.

However:

If you continue living in it, it remains in your estate.
If you move out, you must survive 7 years.
There may be immediate lifetime IHT charges.
There may be ongoing trust charges.
CGT may apply.
You may lose access to the Residence Nil Rate Band.

For most homeowners, simply placing their house into a trust does not eliminate Inheritance Tax.

What Should You Do Instead?

Effective IHT planning often involves:

Reviewing total estate value
Using lifetime gifting strategies
Considering Business Property Relief where available
Reviewing pension strategy
Using spousal exemptions efficiently
Reviewing insurance planning

A tailored estate review is usually far more effective than a single trust strategy.

Final Answer: Does Putting Your House in a Trust Avoid Inheritance Tax?

In most cases, no.

If you continue to benefit from the property, it remains in your estate under gift with reservation rules.

If you give up benefit and survive 7 years, it may fall outside your estate — but this can trigger other tax consequences and practical risks.

Trusts can be valuable tools, but they are rarely simple IHT avoidance solutions for a main residence.

As always, individual circumstances vary and professional advice should be taken before transferring property into a trust.