Planning ahead is not just about writing a will. For some families, Gift Trusts can be a useful way to pass wealth on in a more controlled and structured way while also considering inheritance tax planning.
At Evans Legacy Planning, we help clients across England and Wales understand whether a Gift Trust may be suitable for their circumstances, how it works, and when a simpler route such as a direct gift or a Potentially Exempt Transfer (PET) may be more appropriate.
If you want to speak to us about Gift Trusts, contact us here:
https://evanslegacyplanning.co.uk/contact/
You can also explore our wider estate planning services here:
https://evanslegacyplanning.co.uk/services/
A Gift Trust is a trust used during your lifetime to give away assets while setting rules over how and when those assets should benefit chosen beneficiaries.
In simple terms, you transfer assets into a trust, appoint trustees to manage them, and name the people you want to benefit. The trust then holds and manages those assets under the terms of the trust deed.
Gift Trusts are often considered by people who want to:
Pass wealth to children or grandchildren
Make use of inheritance tax planning opportunities
Keep some control over how gifted assets are managed
Protect against beneficiaries receiving money too early
Create a more structured way of passing assets on
A trust can be useful in the right circumstances, but it is not always the best option for everyone. HMRC and MoneyHelper both make clear that trusts can involve extra tax rules, reporting, and administration, so proper advice matters.
A Gift Trust usually involves three key parts:
The person creating the trust, known as the settlor
The trustees, who manage the trust assets
The beneficiaries, who may benefit from the trust
Once assets are placed into the trust, the trustees manage them according to the terms of the trust deed. Depending on the type of trust used, the beneficiaries may have fixed rights, flexible access, or only benefit at the trustees’ discretion.
This can make Gift Trusts useful where you want to pass on wealth but still want a proper legal structure around it.
If you are also reviewing your will as part of your planning, read more here:
https://evanslegacyplanning.co.uk/will-writing/
Gift Trusts are commonly used where someone wants to make lifetime gifts in a more controlled way.
Common reasons include:
Helping children or grandchildren in the future
Passing on wealth in a structured way
Trying to reduce the value of an estate for inheritance tax purposes
Protecting young or vulnerable beneficiaries
Making sure money is managed by trusted people
Avoiding an outright cash gift with no conditions attached
A Gift Trust can sometimes be useful where a direct gift feels too loose, but a full bespoke trust plan is not needed.
That said, the tax outcome depends heavily on the type of trust used, the value gifted, the available nil-rate band, and the donor’s wider circumstances. HMRC makes clear that not all lifetime gifts are treated the same for inheritance tax.
A PET means a Potentially Exempt Transfer.
This is one of the most important concepts in inheritance tax planning.
In basic terms, a PET is usually a lifetime gift made by one individual to another individual. If the person making the gift survives for 7 years, the gift generally becomes exempt from inheritance tax. If they die within 7 years, the gift may still need to be taken into account when inheritance tax is worked out. GOV.UK explains that no tax is due on gifts if you live for 7 years after making them, unless the gift is part of a trust. HMRC’s manual also confirms that most lifetime gifts to non-exempt beneficiaries are PETs.
So, for example:
A gift from a parent to an adult child may be a PET
A gift from a grandparent to a grandchild may be a PET
If the donor survives 7 years, it may fall outside the estate for inheritance tax purposes
This is why PETs are often discussed in estate planning conversations.
This is where things often get misunderstood.
A direct gift to an individual may be a PET.
A gift into many types of trust is not a PET. Instead, it may be an immediately chargeable transfer, which means inheritance tax consequences can arise when the gift is made, depending on the value involved and the available nil-rate band. HMRC is clear that a transfer into a relevant property trust does not qualify as a PET and is instead immediately chargeable.
That distinction is very important.
In broad terms:
A direct gift to a person may be a PET
A gift into many trusts may be immediately chargeable
Some transfers into a bare trust may be treated differently and can also be exempt if the donor survives 7 years
This is why trust planning should never be based on assumptions. The type of trust used changes the tax treatment.
The 7-year rule is a key part of inheritance tax planning.
GOV.UK explains that gifts can fall outside the inheritance tax calculation if the donor survives for 7 years after making them, unless the gift is part of a trust. If the donor dies within 7 years, the gift may become chargeable and may use up some or all of the available nil-rate band. GOV.UK also explains that taper relief can apply for gifts made 3 to 7 years before death, although taper relief reduces the tax on the gift, not the value of the gift itself.
That means timing matters.
The value of earlier gifts may also affect the tax position of later gifts and the estate on death, especially where chargeable transfers have already been made. HMRC states that earlier chargeable transfers can need to be cumulated when working out tax on a failed PET.
They can be, but not automatically.
A Gift Trust is not a magic way to avoid inheritance tax. The outcome depends on:
The type of trust used
The value placed into trust
Whether the gift is within the nil-rate band
Whether the settlor survives 7 years where relevant
Whether any exemptions apply
Whether the donor continues to benefit from the gifted asset
Whether reporting and trust tax obligations are met
MoneyHelper notes that some gifts, especially large gifts to trusts, can create inheritance tax consequences at the time the gift is made.
So while Gift Trusts can form part of a sensible estate planning strategy, they need to be used properly and for the right reasons.
If you are looking at wider trust planning, read more here:
https://evanslegacyplanning.co.uk/trusts/
A bare trust is one of the simplest trust arrangements.
GOV.UK explains that with a bare trust, the assets are held by trustees but belong directly to the beneficiary, who has the right to both the assets and the income. GOV.UK also notes that transfers into a bare trust may be exempt from inheritance tax, provided the person making the transfer survives for 7 years.
This means a bare trust may sometimes be considered where the aim is to make a gift with a simpler trust structure.
However, it is still important to understand the legal and tax effects before going ahead.
A Gift Trust may be worth considering if:
You want to make a lifetime gift in a structured way
You want trustees to manage money for beneficiaries
You are concerned about beneficiaries receiving funds too early
You want to consider inheritance tax planning as part of your wider estate plan
You want to support children or grandchildren over time
You want to combine control, structure, and family planning
Gift Trusts can be especially useful where an outright gift feels too simple, but full bespoke trust planning may not be necessary.
A Gift Trust is not right for everyone.
It may not be suitable where:
You want complete simplicity
You need access to the gifted assets yourself
The assets are likely to be needed later
The tax position is unclear
A direct PET would be more efficient
A different trust structure would be more suitable
You are trying to solve issues that actually need will planning, business planning, or property planning instead
This is particularly important because ongoing benefit from gifted assets can create separate inheritance tax issues. HMRC’s gift with reservation guidance explains that gifts can fail for inheritance tax purposes if the donor continues to enjoy the benefit of what was supposedly given away.
If you are also looking at property and family protection planning, read more here:
https://evanslegacyplanning.co.uk/protective-property-trusts/
Gift Trusts work best when they are looked at as part of your wider planning, not in isolation.
A good estate plan may involve:
A properly written will
Lasting Powers of Attorney
Lifetime gifts
PET planning
Trust planning
Property protection planning
Clear records of gifts and dates
This matters because gifts made during lifetime may still need to be reported when someone dies. GOV.UK form IHT403 is used to tell HMRC about gifts and transfers of value made on or after 18 March 1986, and MoneyHelper also notes that gifts made in the 7 years before death may need to be included when valuing an estate.
You can learn more about our will writing service here:
https://evanslegacyplanning.co.uk/will-writing/
You can read about Lasting Powers of Attorney here:
https://evanslegacyplanning.co.uk/lasting-power-of-attorney/
Gift Trusts can be effective in the right circumstances, but they are not something to set up casually.
The rules around gifts, trusts, PETs, nil-rate bands, immediate charges, reporting, and ongoing administration can be complex. HMRC provides specific forms and guidance for reporting inheritance tax due on gifts and trusts, which reflects how technical this area can be.
That is why proper advice matters.
At Evans Legacy Planning, we explain things in plain English and help you understand whether:
A straightforward gift may be enough
A PET may be the simplest route
A Gift Trust may suit your aims
A different trust structure may be better
Your will and wider estate planning need updating alongside any trust planning
At Evans Legacy Planning, we help individuals, couples, and families across England and Wales with clear and practical estate planning.
We can help with:
Gift Trusts
Trust Planning
Will Writing
Mirror Wills
Lasting Powers of Attorney
Property Protection Trusts
Broader estate planning support
Our approach is based on plain English, sensible guidance, and helping you understand the options properly before you commit to anything.
Explore all services here:
https://evanslegacyplanning.co.uk/services/
Contact us here:
https://evanslegacyplanning.co.uk/contact/
For general official guidance, these are helpful resources:
GOV.UK – Inheritance Tax and gifts
https://www.gov.uk/inheritance-tax/gifts
GOV.UK – Trusts and Inheritance Tax
https://www.gov.uk/trusts-taxes/trusts-and-inheritance-tax
HMRC Manual – What is a PET?
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04057
HMRC Manual – Immediately chargeable transfers
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04067
MoneyHelper – Gifts and exemptions from Inheritance Tax
https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/gifts-and-exemptions-from-inheritance-tax
A Gift Trust is a trust used during your lifetime to give assets away while setting out how those assets should be managed and who should benefit from them.
A PET is a Potentially Exempt Transfer. This is usually a gift from one individual to another individual that can fall outside inheritance tax if the donor survives for 7 years.
Not always. Many gifts into trust are not PETs and may instead be immediately chargeable transfers for inheritance tax purposes. HMRC is clear on this point.
Not automatically. The inheritance tax outcome depends on the type of trust, the value gifted, the nil-rate band, the timing of death, and whether any other rules apply.
The 7-year rule means some gifts can become exempt from inheritance tax if the donor survives for 7 years after making them. This does not apply in the same way to all trust gifts.
That depends on the structure, but continuing to benefit from gifted assets can create problems, including gift with reservation issues for inheritance tax.
If you are considering a Gift Trust, PET planning, or wider inheritance tax planning, Evans Legacy Planning can help you understand your options in plain English.
We can talk you through whether a Gift Trust is suitable, whether a direct gift may be simpler, and how trusts fit into your wider will and estate planning.
Contact us today:
https://evanslegacyplanning.co.uk/contact/
Read more about trusts here:
https://evanslegacyplanning.co.uk/trusts/
Explore all services here:
https://evanslegacyplanning.co.uk/services/
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