Last Verified 25 Nov 2025 (England & Wales)
Many couples now sit close to the inheritance-tax thresholds without seeing themselves as “wealthy.” Rising house prices, investments and pensions mean more families risk wasting valuable tax allowances or losing some of the Residence Nil Rate Band (RNRB), especially on the second death.
A Nil Rate Band Discretionary Trust (NRBDT) is an older tool that has quietly returned to focus. Used carefully, it can help preserve allowances, keep options open for the family, and still look after the survivor.
Quick-read summary• An NRBDT is a discretionary trust in a Will that takes assets up to the Nil Rate Band (currently £325,000).
• The trust is a separate legal entity for inheritance-tax purposes (a “relevant property trust”).
• Assets in the trust are not part of the beneficiaries’ estates, which can help reduce IHT on second death.
• The surviving spouse or partner can still be a potential beneficiary, often supported via loans or distributions guided by a letter of wishes.
• NRBDTs are especially useful for: unmarried couples; remarried widows/widowers with more than one late spouse; “wait and see” planning for children; and estates close to the RNRB taper threshold.
• They must be drafted carefully to avoid wasting transferable allowances or creating unnecessary anniversary/exit charges.An NRBDT is about flexibility and control: keeping options open for the family while making better use of existing tax allowances.
What is a Nil Rate Band Discretionary Trust?
An NRBDT is simply a discretionary trust that receives assets up to the value of the Nil Rate Band (NRB) when someone dies. Think of an NRBDT as a ‘safety buffer’ that ring-fences part of the estate while still leaving room to adapt to the family’s needs.
Discretionary trusts are “relevant property trusts” and therefore are their own legal entity for inheritance-tax purposes. Assets in the trust are treated as owned by the trustees, not by the potential beneficiaries. Those assets are therefore outside the beneficiaries’ taxable estates, although the trust itself is subject to its own IHT rules (including possible 10-year and exit charges).
In a Will, the NRBDT will usually name a class of potential beneficiaries, such as:• the surviving spouse or partner
• children and remoter descendants
• sometimes wider family or other chosen beneficiaries.
The trustees then decide who benefits, when, and in what proportions.The key feature of a discretionary trust is trustee choice. No beneficiary has an automatic right to capital or income unless and until the trustees decide.
Letters of wishes and practical useA Letter of Wishes (LOW) is usually prepared alongside the Will. It guides the trustees on how to exercise their discretion without legally binding them.
In an NRBDT context, the LOW will often:• make clear that the surviving spouse or partner should be treated as the primary beneficiary during their lifetime; and
• explain when and how the children or other beneficiaries should benefit, often on or after the survivor’s death.
In practice, trustees may:• allow the survivor to borrow from the trust, with the loan repayable on their death; and/or
• use trust funds for children’s education, housing support or welfare; and/or
• retain funds in the trust to protect them from future risks affecting the family.
When are NRBDTs still useful?The introduction of the Transferable Nil Rate Band (TNRB) reduced the need to use NRBDTs in every Will. However, there are still several situations where an NRBDT can add real value. The themes below illustrate the main planning areas.
CasesUnmarried partners and the loss of spousal exemptionsUnmarried couples do not benefit from the spousal exemption, the TNRB or the transferable RNRB. If everything is left to the surviving partner on the first death, both estates may be fully exposed to IHT, and the survivor will only have their own NRB available on the second death.Unmarried partners get no automatic spousal exemption or transferable allowances – if everything is ‘left to each other’, inheritance tax can bite twice.
Using an NRBDT allows assets up to the NRB to pass into the trust on the first death. The survivor can still benefit from the trust, but the trust fund itself is outside their estate for IHT purposes.
Case – John and Jane (married vs unmarried)
John and Jane each own assets worth £300,000.
If married, John dies first, leaving everything outright to Jane. No IHT is payable on his death due to the spousal exemption. His unused NRB (and RNRB) transfer to Jane. On Jane’s death, she leaves her estate, now valued at £600,000, to John’s children. Her estate benefits from her own NRB plus John’s transferred NRB, so no IHT is payable. Because step-children count as direct descendants for RNRB, the RNRB position is also preserved.
If not married: John dies first, leaving his £300,000 estate to Jane. No IHT is payable because his estate is within the NRB. On Jane’s death, her £600,000 estate has only her own NRB available. £275,000 is taxed at 40%, and her estate does not qualify for RNRB because John’s children are not classed as her direct descendants.
If John instead left his NRB to an NRBDT for Jane and his children, the trust would hold his £300,000 outside Jane’s estate. Jane would still have use of those funds through the trust, but on her death, her own estate would be within her NRB and pass free of IHT to John’s children.
Remarried widows/widowers and multiple Nil Rate BandsSection 8A Inheritance Tax Act 1984 limits a person to benefiting from a single additional NRB (up to 100% of the standard amount), even if they have more than one late spouse. This can create a problem for someone who has enviable but “wastable” allowances from more than one previous marriage.Where there has been more than one late spouse, careful use of NRBDTs can stop valuable Nil Rate Bands being quietly wasted.
By using NRBDTs in the Wills of the remarried couple, it may be possible to make use of more than one set of NRBs in total.
Case – Tony and Sian (four Nil Rate Bands)
Tony’s first wife died in 2001, leaving everything to him. In 2010, he married Sian, whose first husband had died in 2004, also leaving everything to her.Tony and Sian each include an NRBDT in their Wills for each other and their children, with the provision that their own NRB plus any available TNRB be taken.
• Tony dies first. His NRB and the TNRB from his late wife pass into the NRBDT created by his Will; everything else passes outright to Sian.
• On Sian’s later death, her estate benefits from her own NRB plus the TNRB from her first husband.
In total, the planning has used four NRBs. Without the NRBDT structure, only two NRBs could have been used, and the extra two would have been lost.
“Wait and see” planning for children and wider familySome testators want flexibility: they are not sure today how best to divide assets between their spouse, children, and other family members. They may have younger children, beneficiaries with uncertain needs, or a desire to protect against future risks that are not yet clear.
An NRBDT allows trustees to review the family position at the testator’s death and then decide how to apply the fund.In these cases, the trust is often drafted so that:• the surviving spouse is a potential beneficiary, ensuring they can be supported if needed; and
• children and other beneficiaries can receive funds later, once the trustees are confident the survivor is adequately provided for.
The advantages mirror those of other discretionary trusts: flexibility, targeted support, and protection of vulnerable beneficiaries.
Reducing IHT where trusts will be used on the second deathIf the intention is that, on the second spouse’s death, the residue will be held on discretionary (relevant property) trusts for children or grandchildren, it may still be worth including an NRBDT on the first death.Crossing the £2 million taper threshold can quietly add tens of thousands of pounds to the family’s inheritance tax bill.
Where two separate discretionary trusts are set up at different times by different settlors (for example, one on each spouse’s death), they are generally treated as separate settlements for IHT. Each has its own NRB for calculating 10-year and exit charges. One larger trust created solely on second death may face higher ongoing charges.
Case – Henry and Angela (two separate trusts)With NRBDTHenry’s estate is £500,000. His Will leaves his entire estate to an NRBDT for Angela and their descendants, with the condition that they use his own Nil Rate Band and any transferable Nil Rate Band available from his late wife. There is no IHT on his death. Angela’s own estate is £400,000. On her death, she leaves her estate to a discretionary trust for their descendants. There is some IHT on her death because her estate exceeds the NRB, but later 10-year and exit charges are calculated only on the value in her trust above the NRB (initially around £75,000). Henry’s earlier trust is a separate settlement.
Without NRBDT
If Henry had left everything outright to Angela and she then left the combined £725,000 to a single discretionary trust, the IHT on her death might be similar. Still, future 10-year and exit charges would be calculated on a much larger excess above the NRB. The ongoing cost to the family could be significantly higher.
Reducing anniversary and exit charges in larger estatesWhere a married couple’s combined estate exceeds one NRB, and they intend to use discretionary trusts on second death, placing NRB-sized funds into an NRBDT on first death can reduce, or sometimes eliminate, anniversary and exit charges later.
By spreading value across multiple relevant property trusts, each with its own NRB, less of the overall trust value sits above the threshold at each 10-year charge point.The trade-off is that using an NRBDT may reduce or remove the TNRB available to the survivor. Careful calculations and up-to-date advice are essential before deciding whether this planning is worthwhile.NRBDT planning is never one-size-fits-all. It must be modelled against the specific estate values, family structure and future intentions.
The RNRB taper threshold and the “taper trap”The Residence Nil Rate Band (RNRB) is now a key part of planning for many married couples who leave their primary residence to direct descendants. Where both the NRB and RNRB (and their transferable equivalents) are available, a couple can potentially pass up to £1 million free of IHT.
The difficulty is the RNRB taper threshold. The threshold is currently £2 million and will remain frozen until April 2030. For every £2 that the estate exceeds £2 million on death, the RNRB is reduced by £1. It is entirely lost once the estate exceeds £2.35 million for an individual, or £2.7 million for a couple with full transferable RNRB.
Many couples find their combined estate hovering around this threshold, especially once pensions, investments and business interests are included. If everything passes to the survivor on the first death, the survivor’s estate may exceed the taper threshold, dramatically reducing or eliminating the RNRB on the second death.
From 6 April 2027, most unused pension funds and death benefits will be included within a person’s estate for inheritance tax purposes and will also count towards the £2 million RNRB taper threshold. This makes it even more likely that higher-value estates – particularly those with larger defined contribution pensions – will fall into, or further above, the taper zone.
Case – Mr and Mrs Brown (without NRBDT)Mr and Mrs Brown have a combined estate of £2.4 million, including their home. They have two children and want everything to pass to the survivor, then to the children.
On Mr Brown’s death, all assets pass to Mrs Brown. No IHT is payable because of the spouse exemption. On her later death, the estate is still £2.4 million.
If there were no taper:• Total allowance: £650,000 (two NRBs) + £350,000 (two full RNRBs) = £1,000,000
• Taxable estate: £2.4m – £1m = £1.4m
• IHT: £1.4m × 40% = £560,000With the taper:• Mrs Brown’s estate is £400,000 over the £2m taper threshold.
• The couple’s combined RNRB is reduced by £200,000 (£1 lost for every £2 over the threshold), leaving £150,000 RNRB.
Revised figures:• Total allowance: £650,000 (two NRBs) + £150,000 (tapered RNRB) = £800,000
• Taxable estate: £2.4m – £800,000 = £1.6m
• IHT: £1.6m × 40% = £640,000The taper has cost the family an extra £80,000 of IHT.
Using NRBDTs to help manage the taperAn NRBDT clause in each spouse’s Will can help keep the survivor’s estate nearer to, or below, the taper threshold.
On the first death, assets up to the NRB (currently £325,000) pass into the NRBDT rather than being transferred outright to the surviving spouse. The spouse and children are usually potential beneficiaries. The trustees, guided by the Letter of Wishes, can still treat the spouse as the primary beneficiary during their lifetime.Because the trust is a separate taxable entity, those assets are not counted in the survivor’s estate on the second death. This can preserve more (or all) of the RNRB.
Case – Mr and Mrs Brown with NRBDTsMr Brown’s Will now leaves up to his NRB into an NRBDT, with the balance to Mrs Brown.• On his death, the trustees receive £325,000 into the trust.• On her later death, her own estate is £2.075 million. The £325,000 in the NRBDT sits outside her estate.
Her estate is now only £75,000 over the £2m taper threshold. The RNRB is reduced by £37,500, leaving £312,500 RNRB.IHT is now:• Total allowance: £325,000 (NRB) + £312,500 (tapered RNRB) = £637,500
• Taxable estate: £2.075m – £637,500 = £1,437,500
• IHT: £1,437,500 × 40% = £575,000The NRBDT has saved £65,000 in IHT compared with the earlier “all to spouse” approach.
Alternative: a Nil Rate Band gift instead of a trustSome couples prefer a more straightforward route. Instead of using a Nil Rate Band Discretionary Trust, they can make an outright gift of NRB-sized assets (for example, to adult children) on first death.
This can have a similar effect on the taper by reducing the survivor’s estate, but it comes with trade-offs:• The recipients own the assets immediately and absolutely.
• There is no ongoing control or protection if a child divorces, goes bankrupt, or later dies.
• The surviving spouse has no automatic access to those funds if they later need them.Where there are concerns about age, vulnerability, relationship breakdown or future claims, an NRBDT usually offers more control and flexibility than an outright gift.The correct answer is rarely ‘trusts everywhere’ or ‘no trusts at all’ – it depends on your estate, your family, and what you want to protect.
Ethical and governance noteFor ethical and governance reasons, Fern Wills & LPAs does not take trustee appointments or create standalone lifetime trusts. However, we do create trusts that arise on death within Wills. Where a trust needs to be operated or registered, we will introduce you to an appropriate specialist to act and administer the trust. You remain free to choose your own adviser.
Is an NRBDT right for you?Nil Rate Band Discretionary Trusts are not a universal answer, and they will not be appropriate for every estate. They can, however, be powerful in the right circumstances:• unmarried partners who would otherwise lose spousal exemptions
• remarried widows or widowers with allowances from more than one late spouse
• families wanting a “wait and see” approach for children and vulnerable beneficiaries
• couples planning to use discretionary trusts on the second death
• estates close to, or just above, the RNRB taper threshold.
Tax rules, thresholds and allowances do change. The figures in this article are illustrative only and based on the regime in force at the time of writing. If your circumstances change, or if you are unsure how the rules apply to you, you should ask for your Will and any trust provisions to be reviewed.
All references in this article to spouses, married couples and marriage also include civil partners and civil partnerships. 
