The short answer: each person has a £325,000 nil rate band and up to £175,000 residence nil rate band, both frozen. From 6 April 2026, 100% Business and Agricultural Property Relief is capped at a combined £2.5 million per person, with 50% relief above that. From April 2027 unused pension funds also fall within Inheritance Tax. Trusts remain a useful planning tool, but each type is taxed differently and carries its own filing duties.
Nil Rate Bands
- Nil rate band (NRB): £325,000 per person, frozen.
- Residence nil rate band (RNRB): up to £175,000 per person when a home passes to direct descendants, also frozen.
- RNRB taper: reduced by £1 for every £2 the estate exceeds £2 million, so it is lost entirely on larger estates.
- Unused bands can be transferred to a surviving spouse or civil partner.
The April 2026 APR and BPR Reforms
From 6 April 2026 Agricultural Property Relief (APR) and Business Property Relief (BPR) changed significantly:
- 100% relief applies to the first £2.5 million of combined qualifying agricultural and business property.
- 50% relief applies above £2.5 million, giving an effective Inheritance Tax rate of 20% on the excess.
- The £2.5 million allowance is transferable between spouses and civil partners, so a couple may shelter up to £5 million.
- Trusts have their own £2.5 million allowance for ten year and exit charges.
- AIM shares and similar unlisted shares on recognised growth markets receive 50% relief only.
Family businesses, farms and landowners in Hampshire should review succession plans, wills and existing trusts in light of these limits.
How Trusts Are Taxed
| Trust type | Income tax | Key points |
|---|---|---|
| Bare trust | Taxed on the beneficiary | Income and gains treated as the beneficiary's own |
| Interest in possession | 20% on non dividend income, 10.75% on dividends | Life tenant is entitled to the income and receives credit for tax paid |
| Discretionary | 45% on non dividend income, 39.35% on dividends | No tax where total trust income is £500 or less; ten year and exit charges apply |
Discretionary trusts benefit from a £500 de minimis: if total trust income is £500 or less, no tax is due. If income exceeds £500, the whole amount is taxable. These trusts also face a periodic charge of up to 6% every ten years and exit charges when capital leaves the trust, now calculated after the trust's own £2.5 million APR and BPR allowance.
Pensions and Inheritance Tax from April 2027
From April 2027, most unused pension funds will be brought within the scope of Inheritance Tax. Death in service benefits are excluded. Many families have treated pensions as outside the estate, so wills, nominations and gifting plans should be reviewed well before then.
Trustee and Executor Obligations
- Register the trust on HMRC's Trust Registration Service (TRS) where required.
- File an annual SA900 Trust and Estate Tax Return and pay any tax by 31 January.
- Issue form R185 to beneficiaries so they can report income and claim credit for tax paid.
- Executors must report income and gains arising during the administration period before the estate is distributed.
How We Can Help
Kingsley Accountancy prepares trust tax returns, estate administration accounts and Inheritance Tax planning for families and business owners across Hampshire and the UK. See our trusts and estates services or browse our FAQs.