What Are the Disadvantages of Putting Your House in a Trust?

Placing your home in a trust is often promoted as an IHT-saving strategy, but in most cases it creates more problems than it solves for homeowners in England and Wales.

Transferring property into a discretionary trust above the £325,000 nil-rate band triggers an immediate 20% IHT charge on the excess value at the point of transfer.

Once your home is held in a trust, you lose eligibility for the £175,000 residence nil-rate band (£350,000 for couples). This typically increases your family's eventual IHT bill rather than reducing it.

Trusts holding property are subject to IHT charges of up to 6% of the trust's value every ten years, plus exit charges when assets are distributed.

Once transferred, the property legally belongs to the trust. Your trustees, not you, control it. You could be required to move if circumstances change.

Local authorities can treat assets transferred into a trust as "deprivation of assets" and still include them when assessing care home fees.

The transfer may also trigger capital gains tax complications when the property is eventually sold.

For most homeowners, making a proper will and using the residence nil-rate band directly is far more tax-efficient than a trust arrangement.

Unlike a one-off gift that falls out of your estate after seven years, a trust creates a recurring tax liability. Every ten years from the date the trust was established, HMRC applies a periodic charge of up to 6% on the trust’s value above the nil-rate band (HMRC, Trusts and Inheritance Tax guidance).

On a property worth £500,000 held in a discretionary trust, the calculation works as follows: £500,000 minus the £325,000 nil-rate band leaves £175,000 taxable. At the maximum 6% rate, that produces a charge of £10,500 every decade. If property values rise (as they have consistently over the past 30 years), each subsequent ten-year charge will be higher.

Exit charges also apply when assets are distributed from the trust between anniversaries. These are calculated as a proportion of the last (or hypothetical first) periodic charge, so removing the property from the trust to give it to a beneficiary still triggers a tax event.

From April 2026, changes to the calculation of trust exit charges mean that Agricultural Property Relief and Business Property Relief will no longer reduce the effective rate between anniversaries (Finance Act 2025). This makes trust-held assets more expensive to distribute.

A common reason people consider trusts is to protect their home from care home fee assessments. This strategy rarely works. Local authorities can apply “deprivation of assets” rules under the Care Act 2014 if they determine you transferred property into a trust to avoid paying for care.

There is no time limit on this look-back. Unlike the seven-year rule for IHT, local authorities can investigate transfers made at any point if they suspect the motivation was to reduce assessable assets (Age UK Factsheet 40, September 2025). If a deprivation finding is made, the local authority calculates your care fees as if you still own the property.

The consequence is that you pay both the trust running costs and the care fees you were trying to avoid, leaving your family worse off than if the property had remained in your name.

Trusts are not always wrong. They serve legitimate purposes for families with specific circumstances: protecting assets for vulnerable beneficiaries who cannot manage property themselves, ring-fencing a property for children from a first marriage in a blended family, or managing assets for minor beneficiaries until they reach a suitable age.

In these cases, the trust is solving a control or protection problem, not an IHT problem. The tax cost is accepted as the price of that protection.

For pure IHT planning, strategies that preserve your nil-rate bands and use legitimate gifting from surplus income typically deliver better results. A specialist IHT planning review will model the numbers for your specific estate before you commit to a trust structure.