Inheritance tax has always divided opinion, but one thing is certain: many families go to great lengths to minimise it. From April 2027, that becomes more difficult. Unused private pension pots will fall inside the inheritance tax net for the first time. Against a backdrop of tighter rules and pre-budget anxiety, one product promising to sweep away liabilities and protect families from social care costs has gained traction.
Family protection trusts are sold as a neat solution. Put your assets inside, appoint trustees and you are told your estate will be safely shielded from fees and tax. It sounds disarmingly simple. The truth, for some families I’ve met, could not be more different.
These types of trust are being pushed on those who will only ever be worse-off as a result
Joan McFarland from Troon discovered after her parents died that they had been persuaded to place their home and savings into a trust. Her father paid nearly £8,000 to set it up. The paperwork claimed the trust would spare them care home fees and cut inheritance tax by 40%. None of it stood up.
By transferring the house into the trust, any increase in its value became taxable. Their ISAs were pushed into a bond inside the trust, triggering tax they would otherwise never have owed. Unwinding the arrangement cost the family £45,000, including £32,000 in avoidable capital gains tax.
McFarland told me: “My father was seeking financial advice just to make sure that his house was in order. He would have been absolutely furious about what happened.”
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In Berkshire, Sandra Bushnell met a solicitor promoting free wills month at her local garden centre. After drafting her will, he steered her towards a family protection trust and wrongly claimed it would stop the council forcing a house sale to fund care. Only when her daughter spotted a basic error in the documents did she pull out. “If they were getting my name wrong, how could we trust the legal stuff?” she said. By then she had paid £2,900 and received only £1,300 back.
Bushnell’s new solicitor, Jade Gani from Circe Law, sees the pattern regularly. “Unregulated providers get off-the-shelf trust documents from regulated firms, repackage them and sell them on. But that means these types of trust are being pushed on consumers who will only ever be worse-off as a result.”
The Association of Lifetime Lawyers reports a surge in cases, with 95% of members saying clients have been caught out.
Watch out for firms promoting free or cheap wills before pushing you to enter these expensive arrangements. If in any doubt, speak to a regulated firm and get a second opinion. Right now, the biggest threat to your legacy may not be HMRC. It may be the sharp-suited legal operator insisting they can outsmart it.
Photograph by Catherine `Falls Commercial/ Getty Images