Nil Rate Band Discretionary Trusts (NRBDTs)
Last verified: 13 November 2025 (England & Wales law)Quick-read summary
A Nil Rate Band Discretionary Trust (NRBDT) is a discretionary trust designed to receive assets up to the value of the Nil Rate Band (NRB).
It can:
• Keep assets outside the survivor’s taxable estate.
• Still allow the survivor and family to benefit, usually under a flexible letter of wishes.
• Help where there are unmarried couples, second marriages, “wait and see” family situations, or estates near the Residence Nil Rate Band (RNRB) taper threshold.
NRBDTs sit within the “relevant property” regime for inheritance tax (IHT), so 10-year and exit charges can apply. Used carefully, they can still reduce overall IHT and preserve allowances that might otherwise be lost.
A NRBDT is a discretionary trust that takes assets up to the current Nil Rate Band. For IHT purposes, it is a separate “relevant property” settlement. The assets in the trust are treated as being owned by the trustees, not the beneficiaries, so they are usually outside the beneficiaries’ taxable estates.
How an NRBDT typically works
The trust will usually:
• Name the surviving spouse and others (usually children and remoter descendants) as potential beneficiaries.
• Allow the surviving spouse to access capital (commonly by way of a loan which is repaid on the survivor’s death).
• Allow support for children’s education and welfare, or other family needs, at the trustees’ discretion.
A letter of wishes (LOW) is usually drafted alongside the Will to guide the trustees. This often makes it clear that the spouse is to be treated as the primary beneficiary during their lifetime, with assets then being used to support the children or other beneficiaries after the spouse’s death.
Since the introduction of the Transferable Nil Rate Band (TNRB), NRBDTs are used less often than they once were. However, there are still clear situations where they can be instrumental, particularly where:
• Couples are not married or in a civil partnership.
• There have been previous marriages, and multiple NRBs may be available.
• The family wants a “wait and see” approach.
• Large estates are likely to be left on discretionary trusts on second death.
• The RNRB taper threshold (currently £2 million) is a concern.
Cases: where an NRBDT can help
- Unmarried couples and stepchildren
Unmarried couples do not benefit from:
• The spouse or civil partner exemption.
• The Transferable NRB (TNRB).
• The transferable RNRB.
If an unmarried couple leaves everything to each other, their estates can be considered for IHT on both the first and second death, without the benefit of two NRBs on the second death. This can lead to a higher IHT bill than necessary.
Using a NRBDT means that, upon the first death, assets can pass into trust rather than being inherited outright by the survivor. The survivor can still benefit from the trust, but the assets are not included in their estate for IHT purposes.
Case: John and Jane – married vs unmarried
John and Jane each own £300,000. They have no joint children, but John has children from a previous relationship.
Married scenario:
John dies first, leaving his estate to Jane outright. No IHT is due on his death because of the spouse exemption, and his unused NRB (and RNRB) are available to transfer to Jane.
On Jane’s death, she leaves her £600,000 estate to John’s children. Her estate benefits from her own NRB and John’s unused NRB, so no IHT is payable. Stepchildren are considered direct descendants for RNRB purposes, even though the RNRB is not applicable in this case.
Unmarried scenario:
Imagine the same couple, but not married to each other. John dies and leaves everything to Jane. No IHT is due on John’s death because his estate is below the NRB.
Upon Jane’s death, her estate benefits only from her own NRB. £275,000 of her £600,000 estate is taxable at a rate of 40%. The estate does not qualify for RNRB, as the late partner’s children are not considered “direct descendants” for RNRB purposes.
Unmarried with NRBDTs:
If John’s Will had used an NRBDT, on his death, no IHT would still be payable as his estate is below the NRB, but his £300,000 would pass to the trust, not to Jane outright. Jane would still only own £300,000. This is below her NRB, so her estate would pass IHT-free to John’s children. She can still be a beneficiary of the trust during her lifetime, but the trust assets would not be included in her estate for IHT purposes.
Key point for unmarried couples. NRBDTs can allow the survivor to be looked after without inflating their taxable estate and without losing both partners’ NRBs.
2. Remarried widows/widowers and multiple Nil Rate Bands
Section 8A Inheritance Tax Act 1984 allows a person to benefit from only one additional NRB, even if they have been widowed more than once. The total claimable TNRB can never exceed 100% of the current NRB.
This can leave a remarried widow/widower in a difficult IHT position. They may:
• Have an unused NRB from their late spouse; and
• Now be married to someone who also has a potential TNRB from a previous spouse.
If they leave everything outright to each other, on second death, only one additional NRB can be claimed, and a potential third NRB is effectively wasted.
A solution is for both spouses to leave assets equal to one NRB into an NRBDT, with the rest passing outright to the survivor.
This allows:
• One NRB to be used by the trust on the first death; and
• One NRB to be carried forward and claimed on the second death.
If each has already been widowed, the planning can allow up to four NRBs to be utilised instead of only two.
Case: Tony and Sian – using four NRBs
Tony’s first wife died in 2001, leaving her estate to him. In 2010, he married Sian, who had been widowed in 2004 after inheriting her first husband’s estate.
Tony and Sian both include NRBDTs in their Wills for each other and their children, expressed to use their own NRB and any available TNRB.
• Tony dies first. His NRB, plus the TNRB from his late wife, passes into the NRBDT. The residue of his estate passes to Sian.
• On Sian’s later death, her estate still has her own NRB plus the TNRB from her first husband.
In total, four NRBs have been used. Without the NRBDTs, only two NRBs would have been available, and the other two would have been lost.
- “Wait and see” planning for family circumstances
Some testators want maximum flexibility. They may want to:
• Provide for their children or other beneficiaries up to the NRB, but
• Allow trustees to “wait and see” what the family’s circumstances are at the date of death.
If the children are young or their future needs are uncertain, an NRBDT can give trustees real flexibility. At death, the trustees can assess:
• How secure the surviving spouse is.
• Whether extra support is needed for the children.
• Whether it is better to retain capital in the trust or make appointments.
The spouse can be included as a potential beneficiary, allowing trustees to ensure they are fully provided for before capital is passed to the children. If necessary, distributions to children can be deferred until the spouse has died or their needs have changed.
In this way, the benefits mirror those of a standard discretionary trust—flexibility, asset protection, and discretion over how and when to distribute income and capital—while still utilising the NRB efficiently.
- Reducing IHT on second death where trusts are used anyway
Where the intention is for the residuary estate to be held on discretionary (relevant property) trusts on the second spouse’s death, it may be sensible to include an NRBDT in the first spouse’s Will.
• If all assets are simply left to the survivor and then, on second death, paid into one discretionary trust, that single trust may have a significant value and only one NRB to set against ongoing relevant-property charges.
• If an NRBDT is used on the first death, there will be two separate trusts on the second death, each with its own NRB for 10-year and exit charges.
Case: Henry and Angela – one trust vs two
With NRBDT
Henry has an estate worth £500,000. On his death, he leaves his NRB to an NRBDT for Angela and the descendants, and the residue to Angela. There is no IHT on his death.
Angela has an estate worth £400,000. On her death, she leaves her estate to a discretionary trust for the descendants. Her estate pays a small amount of IHT because the assets going into the trust exceed her NRB of £325,000.
Going forward, there are:
• No regular IHT charges on Henry’s trust (it is at or below the NRB).
• Relevant property charges on Angela’s trust only on the value over the NRB (£75,000 initially).
The two trusts are separate settlements with separate NRBs.
Without NRBDT
Exact figures, but Henry leaves everything to Angela. On her death, her estate is worth £725,000 and passes into a discretionary trust. The IHT at death is the same. However, the ongoing charges are higher because the value above the NRB for the single trust is £400,000, not £75,000.
- Reducing anniversary and exit charges with two settlements
Where a married couple intends to place assets into a discretionary trust upon the second death and has assets exceeding the NRB, they can also consider using NRBDTs upon the first death.
• If the whole combined estate passes into one discretionary trust on second death, that single trust may be well above the NRB for relevant-property purposes.
• If assets pass into an NRBDT on first death, and then the rest into a further discretionary trust on second death, there can be two trusts, each with its own NRB.
That can reduce or even eliminate 10-year and exit charges. The trade-off is that the transferable NRB may not be available to the surviving spouse.
Related settlements. To achieve the IHT benefits described above, it is essential that the NRBDT on first death and any later discretionary trust on second death are not treated as “related settlements.” Careful drafting and advice are needed.
- The RNRB taper threshold and the “taper trap”
The Residence Nil Rate Band (RNRB) is now a key part of IHT planning for married couples and civil partners where a home is left to direct descendants.
Understanding the allowances
• NRB: £325,000 per person.
• RNRB: £175,000 per person where the primary residence passes to direct descendants.
• Both can be transferable between spouses/civil partners if unused, so that a couple may pass up to £1 million tax-free (£650,000 NRB + £350,000 RNRB) in the right circumstances.
The RNRB taper threshold is currently £2 million (frozen until at least April 2030). For every £2 that an estate exceeds this threshold, the RNRB is reduced by £1. It is completely lost once the estate exceeds £2.35 million (or £2.7 million for a couple with full transferable RNRB).
The problem: the taper trap
Many couples have combined estates close to £2 million. If everything passes to the survivor on first death, the survivor’s estate may exceed the taper threshold, losing some or all of the RNRB on second death.
This issue is likely to become more common, particularly if death-in-service benefits, life assurance, and potentially pension values are taken into account for IHT and push the estate over the threshold.
Case: Mr and Mrs Brown – without planning
Mr and Mrs Brown have a combined estate of £2.4 million, including their family home. They have two children and want to leave everything to each other on the first death, then to the children on the second death.
On Mr Brown’s death, all assets pass to Mrs Brown. There is no IHT due to the spouse exemption. On Mrs Brown’s death, her estate is £2.4 million.
If there were no RNRB taper
Total potential tax-free allowance would be:
• £650,000 (2 × NRB)
• £350,000 (2 × RNRB)
Total: £1 million
Taxable estate: £2.4 million – £1 million = £1.4 million
IHT: £1.4 million × 40% = £560,000
With the taper
The estate is £400,000 over the £2 million threshold, so the RNRB is reduced by £200,000. The total available RNRB is £150,000.
Total tax-free allowance becomes:
• £650,000 (2 × NRB)
• £150,000 (tapered RNRB)
Total: £800,000
Taxable estate: £2.4 million – £800,000 = £1.6 million
IHT: £1.6 million × 40% = £640,000
The taper has increased IHT by £80,000 compared to the “no taper” outcome.
Case: A £2.1 million estate and an NRBDT
Consider a couple with:
• A home worth £1 million; and
• £1 million in investments and life assurance.
Upon the first death, death-in-service benefits and policies mean the surviving spouse’s estate ends up with approximately £2.1 million. If everything passes to the survivor:
Without NRBDT
Survivor’s estate on second death: £2.1 million.
If both full NRBs and RNRBs were available with no taper:
• Total allowance: £650,000 (2 × NRB) + £350,000 (2 × RNRB) = £1 million.
However, because the estate exceeds the £2 million taper threshold by £ 100,000, the RNRB is reduced by £50,000 (half of £100,000). So available RNRB = £300,000.Total tax-free allowance:
• £650,000 (2 × NRB)
• £300,000 (tapered RNRB)
Total: £950,000
Taxable estate: £2.1 million – £950,000 = £1.15 million
IHT: £1.15 million × 40% = £460,000
With NRBDT
Instead, Wills are drafted so that up to the NRB (currently £325,000) on the first death passes into an NRBDT, with the remainder going to the survivor.
On first death, £325,000 passes into the trust (within the NRB, so no IHT). The remainder passes to the survivor. On the second death, the survivor’s estate is now around £ 2.1 million – £325,000 = £1.775 million.
This is below the £2 million taper threshold, so the full RNRB is available.
Total tax-free allowance:
• £650,000 (2 × NRB)
• £350,000 (2 × RNRB)
Total: £1 million
Taxable estate: £1.775 million – £1 million = £775,000
IHT: £775,000 × 40% = £310,000
The NRBDT has reduced the IHT on second death by around £150,000, while still allowing the survivor to benefit from the trust.
Case: Mr and Mrs Brown – using NRBDTs
Returning to the Browns, their Wills can incorporate NRBDTs.
On Mr Brown’s death, assets up to his NRB pass to an NRBDT, and the rest passes to Mrs Brown. Assume that, after this planning, Mrs Brown’s estate on second death is £2.075 million, with £325,000 held in the trust outside her estate.
Her estate is then only £75,000 over the £2 million taper threshold. The RNRB is reduced by £37,500, leaving £312,500 of RNRB available.
Mrs Brown’s IHT is then calculated as:
Total tax-free allowance:
• £325,000 (NRB)
• £312,500 (tapered RNRB)
Total: £637,500
Taxable estate: £2.075 million – £637,500 = £1,437,500
IHT: £1,437,500 × 40% = £ 575,000. Compared to the earlier £640,000 bill, the use of NRBDTs here saves £65,000 in IHT.
Alternative: Nil Rate Band gifts instead of trusts
For some couples, a more straightforward approach may be for the first to die to make outright gifts equal to the NRB to children or other beneficiaries, rather than using a trust. This can also prevent the survivor’s estate from rising above the taper threshold.
However, this approach is only suitable if the couple is comfortable with beneficiaries receiving assets outright upon the first death.
It may not be appropriate where:
• Children are young or financially inexperienced.
• There are concerns about future divorce or third-party claims.
• The surviving spouse may need access to the full estate for security.
In these circumstances, an NRBDT provides greater control and flexibility while still managing the survivor’s estate value for RNRB purposes.
Ownership and technical notes
• Where NRBDTs are used with property, the home is often owned as tenants in common (50–50) rather than as beneficial joint tenants. Tenants in common means each person owns a defined share that can pass under their Will (including into a trust). Beneficial joint tenants means the survivor automatically inherits the entire property, so it cannot be directed into a trust upon the first death without changing the ownership in advance.
• NRBDTs sit within the relevant property regime, so 10-year and exit charges can apply. The examples above assume careful drafting to keep values within or close to the NRB for those purposes.
• HMRC rules and tax thresholds can change. The NRB, RNRB and the taper threshold used above reflect current figures at the time of writing. Future changes could alter the effectiveness of this planning.
Technical point: To keep the ongoing charges as low as possible, it is important that the NRBDT created on first death and any later discretionary trust created on second death are not treated as ‘related settlements’ for inheritance-tax purposes. In practice, that usually means each trust is created by a different person under their own Will, and not as part of a single combined arrangement. This is a technical area, so specialist drafting and advice are essential.
Under the current inheritance-tax regime, most relevant property trusts (including NRBDTs) can face a ‘periodic’ charge of up to 6% on the value above the Nil Rate Band at each 10-year anniversary, with proportionate ‘exit’ charges when capital is paid out between anniversaries. In practice, where NRBDTs are set up so that the trust fund stays within, or close to, the Nil Rate Band, these ongoing charges are often very small or do not arise at all. The exact impact depends on future values and tax rules, so specific advice is always needed.
Ethical and governance note
For ethical and governance reasons, Fern Wills & LPAs does not take trustee appointments, does not register trusts when they need to be activated, and does not create standalone lifetime trusts. Fern Wills & LPAs creates trusts that arise upon 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.
Conclusion
For couples and families whose estates are close to the RNRB taper threshold, or where there are previous marriages, unmarried partners or complex family needs, Nil Rate Band Discretionary Trusts remain a valuable and flexible planning tool.
They can:
• Preserve valuable allowances (including RNRB).
• Reduce IHT on second death and on ongoing trust charges.
• Still allow the surviving spouse and family to be adequately provided for.
As inheritance tax rules continue to evolve, particularly where pension and death-in-service benefits may increase estate values, NRBDTs are likely to remain a crucial option to consider as part of a comprehensive estate planning review.
All references in this article to spouses, married couples and marriage also include civil partners and civil partnerships.
