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Planning Your Trust Distributions Ahead of April 2026
22 May 2025
Planning Trust Distributions Ahead of April 2026
With reforms to inheritance tax (IHT) Business Property Relief (BPR) and Agricultural Property Relief (APR) due to take effect from 6 April 2026, trustees of trust’s holding qualifying assets should act now to review their options — particularly whether capital appointments to beneficiaries should be brought forward to pre-date the new restrictions.
The proposed changes will introduce limits on the IHT relief available, including a £1 million cap on BPR/APR available at 100%, and a 50% rate of relief on excess value above £1m, as well as anti-fragmentation rules for relevant property settled across multiple trusts. Crucially, trust-held assets will be caught by the new regime even if settled before the legislation comes into force, once the trust hits its next 10-year anniversary after 6 April 2026.
Why Capital Appointments Before April 2026 Might Be Beneficial
Currently, capital appointments of qualifying business or agricultural property from trusts can attract BPR/APR in full, meaning no exit charge arises for (IHT) purposes.
At a high level, from 6 April 2026, trustees making appointments will face:
- A £1 million cap on the amount of trust property eligible for 100% BPR/APR
- Only 50% relief on the value exceeding that cap.
- Anti-fragmentation rules, which aggregate relief across multiple trusts to stop circumvention of the cap.
- Removal of full relief on trust property from the next 10-year anniversary after 6 April 2026 — even if the trust was set up before 30 October 2024 when the changes were announced.
In short, an appointment made before April 2026 could avoid these restrictions entirely.
Strategic Benefits of Early Appointments
Appointing qualifying assets out of trust before the reforms take effect could:
- Secure full BPR/APR at 100% on the value of the assets — avoiding the future cap and reduced relief.
- Avoid exposure to capped relief on 10-year anniversary charges that will apply under the new rules.
- Simplify trust structures where retention of the assets is no longer needed or appropriate.
However, as is always the case, tax-savings must be considered in light of the other ongoing benefits provided by the trust structure:
- Asset protection – Trusts shield assets from beneficiaries’ creditors, divorces, and financial mismanagement.
- Control and flexibility – Trustees can manage when and how beneficiaries receive value.
- Some BPR/APR still available – Relief is restricted post-2026, but not removed entirely.
- Future planning flexibility – Retaining assets keeps options open for later restructuring or legislative change.
Important Warning – The 7-Year Rule Still Applies
While early capital appointments may reduce trust IHT exposure, trustees must also consider the settlor’s position. If the settlor dies within 7 years of having made the initial gift into trust, the value of that gift becomes chargeable to IHT on death.
If BPR or APR applied at the time of the original transfer to the trust, but are no longer available at the date of the settlor’s death — for example, because the assets have been appointed to beneficiaries and no longer qualify — then the relief can be clawed back against the settlor’s estate. This could result in an unexpected and potentially large IHT liability on the failed gift.
Practical tip: Where the settlor is still alive and within the 7-year window, trustees should seek advice on whether retaining qualifying assets in the trust may provide a safer outcome, or whether other planning (e.g. life insurance) should be considered to mitigate the potential exposure.
Final Thoughts
For trustees of existing trusts — especially those established before 30 October 2024 — there is a limited planning window to make tax-efficient appointments before BPR/APR is capped and restricted. Even long-standing trusts may be caught once they reach their next 10-year anniversary on or after 6 April 2026.
Taking action now could significantly improve long-term outcomes — but it’s essential to weigh the benefits of early distribution against both the tax and non-tax benefits provided by trust structure, and the risk of clawback if the settlor dies within 7 years of the original gift.
As is always the case, the right answer will depend each trust’s individual circumstances. For this reason, it is important to seek tailored advice before making any distributions or undertaking structural changes to avoid unintended, and potentially expensive, consequences.
If you have any questions or need advice we are here to help
