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A nil rate band discretionary trust (NRBDT) is a trust structure that was commonly included in wills made before October 2007 to preserve both spouses' inheritance tax nil rate bands. The introduction of the transferable nil rate band has largely removed the tax rationale, but many older wills still contain NRBDTs that executors must understand and deal with.
Before October 2007, the inheritance tax nil rate band (NRB — the amount that could pass free of IHT) was not transferable between spouses. Each person had their own NRB — £300,000 for 2007/08, rising to £312,000 for 2008/09 on GOV.UK's published table — but if a spouse left their entire estate to the survivor on the first death, the first NRB was wasted — the surviving spouse would then die with a doubled estate but only one NRB.
The solution was the NRBDT. Instead of leaving everything to the surviving spouse, the will created a discretionary trust of up to the NRB value on the first death. The surviving spouse would not be the sole beneficiary of the full estate — some of it went into the trust — preserving the first NRB. The surviving spouse could still benefit from the trust at the trustees' discretion.
The transferable nil rate band was enacted by the Finance Act 2008. HMRC's manual (IHTM43001) says it "may be claimed where the surviving spouse or civil partner dies on or after 9 October 2007", and that for married couples the first death can have occurred at any time before or after that date. It allows the unused proportion of the first spouse's NRB to be claimed on the survivor's death, so a surviving spouse can have a combined NRB of up to £650,000 (£325,000 × 2) without any need for a trust structure.
This makes NRBDTs largely redundant for IHT planning purposes. A will that was made in 2003 and contains an NRBDT was entirely sensible tax planning at the time — but the same will administered today may create unnecessary complexity without a corresponding tax benefit.
When administering an estate with an NRBDT, the executor will typically face:
This is time-consuming and costly if the trust's only original purpose was IHT saving that the transferable NRB has now made unnecessary.
The trustees can wind up the NRBDT and distribute the assets to the surviving spouse (or other beneficiaries) at any time, using a deed of appointment.
If the distribution is made within 2 years of the date of death, section 144 of the Inheritance Tax Act 1984 may apply. Under s.144, a distribution from a discretionary will trust within 2 years of death is read back into the will for IHT purposes — as if the deceased had made the distribution directly. This can change the IHT position.
After 2 years, the trust is wound up in the normal way for a discretionary trust. An appointment out is an exit-charge event, not a charge-free step: the rate is worked out by reference to the value settled and the nil-rate band, so an NRBDT funded within the nil-rate band commonly produces a nil charge, but the calculation still has to be done. Separately, a ten-yearly principal charge falls due at each ten-year anniversary while the trust continues, so a trust wound up before its next anniversary does not reach one.
Many NRBDTs were funded not by actually segregating assets but by a loan arrangement. The surviving spouse would borrow the NRB value from the trust (often secured by a charge on the family home), and the trust held the debt as its asset. This created an artificial deduction in the surviving spouse's estate.
Whether that debt is actually deductible in the surviving spouse's estate is the question these arrangements turn on. Section 103 of the Finance Act 1986 restricts the deduction of a debt where the consideration for it came, directly or indirectly, from property the deceased had given away. So an NRBDT loan does not automatically reduce the second estate, and the terms of the loan and the charge have to be read before the estate figures are settled.
For more on IHT planning tools, see our inheritance tax UK 2026–27 guide, the life interest trust (IPDI) guide, and our deed of variation guide. For general probate guidance, see the complete UK probate guide 2026, estate administration checklist, and IHT400 guide. For annual trust tax returns, see the SA900 trust tax return guide. For applying for probate, see our applying for probate guide. For the executor's first steps, see our executor first steps guide. For bare trusts for minor beneficiaries, see our bare trust for minor beneficiaries guide.
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