Living trusts in the UK: what they are and whether you need one

What is a living trust in the UK?

In the UK a living trust usually means a lifetime trust, which is a trust you set up and put assets into whilst you are alive rather than one created by your will. The phrase is an everyday and marketing label rather than a legal category, and it does not appear in GOV.UK's list of trust types, which sorts trusts by how they work, such as bare, interest in possession, discretionary and settlor-interested trusts.

The arrangement most often described this way involves transferring your home, and sometimes savings, into a trust with yourself as one of the trustees, so that you keep control, and often with yourself as a beneficiary, so that you can carry on living in the home, whilst your children or other family are named to benefit after your death. Products sold as asset protection trusts or family protection trusts are usually versions of the same idea, and the selling points offered for them are avoiding probate, Inheritance Tax and care fees.

Does a living trust avoid probate?

For the assets that are genuinely in the trust, largely yes. GOV.UK describes probate as the legal right to deal with a person's property, money and possessions when they die, whilst GOV.UK's overview of trusts and taxes explains that the trustees are the legal owners of the assets held in a trust. Assets properly transferred into the trust are therefore owned by the trustees rather than by you, so they do not pass under your will, and where another trustee carries on after your death your executors do not need a grant to deal with them. If you were the only trustee, the trust deed's arrangements for replacing you matter, because section 18 of the Trustee Act 1925 lets an executor exercise your powers as trustee only once they have proved your will.

That saving is narrower than it can sound, because anything left outside the trust, such as a bank account or a car, still passes through your estate in the normal way, so a living trust does not replace a will and your executors may still need probate. The trust also has to be run for as long as it lasts, which means the trustees take on paperwork during your lifetime that your executors would otherwise have dealt with once, after your death.

Does a living trust avoid Inheritance Tax?

Not if you carry on benefiting from what you have put in. HMRC's guidance on trusts and Inheritance Tax says that if you make a gift into any type of trust but continue to benefit from it, for example by giving away your house and continuing to live in it, the 20% lifetime charge can apply to the transfer and the gift still counts as part of your estate, with only the higher of the two charges applied. These are gifts with reservation of benefit, and HMRC's Inheritance Tax Manual (IHTM14393) says that even the possibility of the settlor being added as a beneficiary of a discretionary trust is enough to create one, unless the trust irrevocably excludes them.

Even where you do not benefit, most lifetime trusts fall within what is called the relevant property regime. A transfer into one is charged at 20% if the trustees pay, on the amount by which it and any chargeable gifts in the previous 7 years exceed the £325,000 nil rate band, and the trust can then face charges of up to 6% at each 10-year anniversary and when assets leave. Our guide to discretionary trusts explains how those charges are worked out, and our guide to reducing Inheritance Tax legally covers the gifts and allowances that work without a trust.

A trust that you can revoke, often called a revocable living trust, is one you can take the assets back from. For Income Tax, section 625 of the Income Tax (Trading and Other Income) Act 2005 treats you as keeping an interest in trust property if there are any circumstances in which it may become payable to you or your spouse or civil partner, and GOV.UK says the settlor of a settlor-interested trust is responsible for Income Tax on its income even where it is not paid out to them, so the ability to take the assets back keeps the Income Tax with you. For Inheritance Tax, HMRC's manual treats even the possibility of the settlor being added as a beneficiary as enough for a gift with reservation, so those rules would be expected to apply to a trust you can take back as well.

Can a living trust cost you the residence nil rate band?

It can, because the residence nil rate band, worth up to £175,000 in 2026/27, depends on a home being inherited by your direct descendants when you die. GOV.UK's guidance on the residence nil rate band says it does not apply to lifetime transfers such as transfers into trusts, and that where a home is held in trust before a death and stays in trust afterwards, it only qualifies if it becomes part of a direct descendant's estate after the death.

HMRC's guidance on trusts and Inheritance Tax is more specific about discretionary trusts, saying the additional threshold does not apply to a home or other assets transferred into a discretionary trust before the person died, even where the beneficiary is a direct descendant. A lifetime trust that keeps your home in trust for your family after you die, rather than letting it pass to your children or grandchildren, can therefore lose an allowance that leaving the home to them in your will could have used, which is consistent with what our discretionary trusts guide says about a home held in a discretionary trust.

Can a living trust protect your home from care fees?

Not reliably, and the official guidance in England points the other way. Annex E of the Care and Support Statutory Guidance lists putting assets into a trust that cannot be revoked among the common ways a person can deprive themselves of capital, and where a council decides that has happened it can assess you as if you still owned the asset.

The test the guidance sets is about motive and timing rather than a fixed number of years. A council should consider whether avoiding the charge was a significant motivation in the timing of the disposal, and whether at that point you could reasonably have expected to need care and to contribute to its cost, whilst the guidance also says it would be unreasonable to find deprivation where someone was fit and healthy and could not have foreseen needing care. Annex E sets no time limit, so the 7 years that matter for Inheritance Tax have no equivalent here, and where assets have gone to someone else the guidance says that person can be asked to pay the difference, up to the benefit they received. Our guide to deprivation of assets and care home fees also covers the different rules in Wales, Scotland and Northern Ireland.

The way these trusts are sold has also drawn concern locally. Leicestershire Trading Standards, in the will-writing section of its summer 2026 scams newsletter, advised caution about property trusts that some consumers had been told would stop the council using their home to pay for care, reporting that homeowners later had difficulty selling and that some companies charged fees of up to 2% of the estate, and it suggested checking that whoever you deal with is a regulated solicitor or other legal professional.

What practical issues come with putting your home in trust?

Moving a home into a trust is a change of ownership, so it brings the steps that come with any transfer as well as some that carry on afterwards.

• The mortgage: HM Land Registry's guidance on completing form TR1 says that where the property is mortgaged, the lender's consent may be needed before the transfer can be registered.

• The Land Registry restriction: Where a home is held on trust the register normally carries a Form A restriction, which HM Land Registry's practice guide on private trusts of land explains is there because money from a sale has to be paid to at least two trustees, so a sale needs two trustees or a trust corporation.

• Registration with HMRC: A lifetime trust is an express trust, so under HMRC's trust registration rules it normally has to be registered on the Trust Registration Service within 90 days of being created, even where no tax is due.

• Running the trust: Trustees are responsible for reporting and paying the trust's tax, including a trust and estate tax return where there is income or gains, and if professional trustees or advisers are involved that work carries ongoing fees.

When can a lifetime trust make sense?

Lifetime trusts have genuine uses, and they tend to work best where you are really giving assets away rather than trying to keep the benefit of them. A grandparent setting money aside for grandchildren too young to manage it can use a bare trust, which our guide to bare trusts and leaving money to grandchildren explains, or a discretionary trust where the trustees need to decide later who needs what.

Trusts are also used to provide for a disabled person, or for a child under 18 whose parent has died, and GOV.UK says some trusts for these vulnerable beneficiaries get special tax treatment. Trusts like these are shaped around the beneficiary's needs and are best set up with advice from a solicitor regulated by the SRA or a STEP practitioner (in Scotland, which has its own trust law, a Scottish solicitor), and none of them depends on you continuing to live in or use what you have given away.

What are the alternatives to a living trust?

For most of the aims a living trust is sold on, the alternatives are a will, possibly with a trust written into it, and a lasting power of attorney. A will can leave your share of a home on a life interest trust for a surviving partner, which is what is usually called a property protection trust, and because it takes effect on your death it does not involve giving anything away during your lifetime. Our guide to wills with trusts and property protection trusts explains what those can and cannot do, including on care fees.

If part of the appeal of a living trust is that someone you trust could manage your property if you became unable to, that is the job of a lasting power of attorney for property and financial affairs, which GOV.UK says can be used as soon as it is registered, with your permission. Our guide to setting up a lasting power of attorney explains how to make one.

What to do next if you are considering a living trust

1. Write down what you want the trust to achieve, because the answer for probate, tax and care is different in each case.

2. Ask anyone recommending a trust to explain in writing how the gift with reservation rules and the residence nil rate band apply to you, and what the council charging rules would mean if you later needed care.

3. Check that the adviser is a solicitor regulated by the SRA or a member of a professional body, and take your time rather than signing under pressure.

4. Take independent advice before transferring your home, including your mortgage lender's position if the property is mortgaged.

5. Make or update your will and consider lasting powers of attorney, whether or not you go ahead with a trust.

Whatever you decide, a clear record of what you own, including which assets sit in a trust and which are in your own name, makes life easier for your family later, because when someone dies their executors have to find and tell every bank, utility, insurer and subscription the person held. If that work does fall to your family, Legacy Trail's free notification service can contact the private-sector companies for them.