Wealth protection measures have become essential for most individuals living in the British Aisles. Are you the owner of a valuable estate, and do you want to eliminate a significant percentage of your descendant’s tax obligations? Then, investing in an asset protection trust can be a fantastic idea. Trusts are straightforward fiduciary relationships in which grantors give ownership rights to their estate to a third party, which will hold on to them on their behalf. Why should you do this? A couple of reasons.

First of all, as the assets will technically no longer be in your possession, the estate you own will no longer be subjected to IHT after your passing. Inheritance tax in the UK is currently set at 40% for any pound over £325,000. This threshold can be increased by leveraging the nil rate band of your spouse and the residence nil rate band provided to your direct descendants. In the best-case scenario, with the aid of RNRB and NBR, the maximum leniency threshold for IHT can reach £1 million. What does this mean? In a nutshell, it means that the estate will not be subjected to inheritance tax as long as its value is below the million-pound mark.

Are you, however, the owner of a property that exceeds that sum? In such a case, trusts are probably the best way to mitigate the impact of IHT. When you place your assets into an external trust, they are no longer part of your estate, so technically, they are not taken into consideration when calculating your descendant’s IHT obligations. The process is easy to understand and can be financially beneficial for your estate’s beneficiaries. That said, if you are interested in an asset protection trust in the UK, there are many options to choose from.

What’s the Best Option Available?

Perhaps the most widely used and easiest to understand trusts are the ones that provide beneficiaries with full rights to assets after the owner passes away. Known as bare trusts or simple trusts, these arrangements are suitable for IHT avoidance purposes, as the assets you transfer to the trusts will be transmitted to your descendants according to your wishes and also shield your possessions from creditors. How can you transfer ownership right of your property to an external trust?

Well, for one thing, you will need a deed of transfer and inform the Land Registry that your previously owned property is now administered by a trust. But, before doing any of this, you will have to draft a trust deed specifying the beneficiaries of the estate and the conditions in which your assets will be distributed. Plus, depending on the conditions of the transfer, you might be required to pay a Stamp Duty Land Tax.

If no money is involved in the transaction, and the estate is basically gifted to the trust, the state will likely determine that no consideration is involved. So, typically, SDLT will not be applicable. That said, this usually is only true for bare trusts. Do you wish, for example, to leverage a discretionary trust? If so, SDLT might apply. How much is this stamp duty tax? As of January 2025, the rate is set at 5% for any residential property with a market value between £250,000 and £925,000, 10% for dwellings between £925,000 and £1.5 million, or 12% for anything above that.

What Other Reasons Are There for Investing in Trusts?

As previously mentioned, secured wealth protection trusts are a fantastic tool to mitigate the impact of IHT on your estate’s descendants. But this is not the only reason you should consider them. A secure asset protection trust in the UK can also be utilised to protect your assets from unfavourable financial developments and shield them from creditors. Let's say, for example, that you are going through bankruptcy, and your possessions are now in foreclosure. Your trust-transferred assets will not be subjected to this enforcement as, technically, they are no longer your direct property. The same is true if you are going through a divorce and you don’t want your estate to be divided during the judiciary process.

There is, however, one more reason to consider them. Let’s say your children are still in their teen years and don’t possess the financial maturity to handle your assets after your passing. Bare trusts can be a way to distribute the valuables of your estate responsibly and transfer ownership deeds to your descendants only after they turn 18. In a nutshell, trusts can be an efficient way to dictate how your possessions are allotted and prevent beneficiaries from spending their inheritance with no involved considerations.

Are Wealth Protection Trusts the Only Available Choice?

No, they are just one of the better wealth protection options. One other technique you can use is to reduce your estate’s total value via acquired debt. For example, if you borrow £200,000 that you later invest in real estate, then your property portfolio will have that sum as a liability, which will be taken into consideration when calculating your IHT. In the same vein, you could also release equity from your property with the help of a home reversion plan. You will still own the property, and it will still be passed on to your children, but the equity you release will now be part of the property’s debt, which will reduce the total value of the IHT obligations.

Are you not that keen on utilising debt in your favour, and have you already considered an asset protection trust? In that case, a wealth protection strategy can make use of shares in AIM companies that qualify for business relief. The AIM acts as a sub-market of the LSE, and it’s typically reserved for companies with significant growth potential that do not currently meet the thresholds necessary to be listed on the London Stock Exchange. AIM shares that qualify for business relief are considered a business asset and, therefore, are exempt from IHT as long as you hold to those shares for at least two years.

That said, in order to qualify for business relief in the UK, the company must not be involved in non-business activities and engage actively in commercial actions. Those shares, even if they are worth hundreds of thousands of pounds, will technically be transmitable to your descendants after you pass and will not be subjected to inheritance tax. Nevertheless, although they are exempt from IHT, AIM shares are usually subjected to CGT.

Publication: 19 February 7:15