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How do trusts avoid inheritance tax?

A trust is a legal arrangements whereby trustees hold and manage assets to be distributed to beneficiaries. Trusts can protect assets from inheritance tax by separating the legal ownership (of the trustees) from the beneficial interests (for the beneficiaries).

The inheritance tax rate is currently 40%, which is applicable for any amount above the usual current threshold of £325,000. Trusts can reduce inheritance tax liability in various ways: lifetime transfers to trusts, trusts for minor children or grandchildren (where the threshold is up to £500,000), and trusts with their own nil-rate band.

 

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