After three consultations and an announcement on 6 June 2014, the Chancellor has altered the way he will tackle the taxation of pilot trusts. Pilot trusts are used for all types of planning, and the new proposals may have far-reaching effects.

What is a pilot trust?

Pilot trusts are dormant settlements, usually created over a small sum, that sit and wait for further funds to be added. The terms of these trusts are usually very flexible. These trusts can be used in the following ways:

  • for the receipt of the proceeds of life assurance or pension death benefits after death
  • to separate property qualifying for Business Property Relief and Agricultural Property Relief passing into trust from other trusts created by will
  • to receive shares of a residuary estate from wills (the use of multiple trusts).

The Chancellor aims to prevent the use of multiple trusts.


Before 10 December 2014, if a person died leaving a will which channelled his residuary estate into the right number of pilot trusts, inheritance tax could be saved during the lifetime of the pilot trusts.

This broadly saves 6% tax every 10 years and, as the trust funds can be applied for family members without becoming part of their estates, inheritance tax could be saved at broadly 40% on their deaths.

As trusts can exist for 125 years, this could enable the testator's property to be used by his family, free of inheritance tax, for this time.


Three proposals have been put forward for consultation by the Government in the past couple of years, looking at how to prevent this tax saving and simplify the taxation of trusts to inheritance tax at the same time. Each proposal tinkered with different parts of the regime for the inheritance taxation of trusts.

The Government made an announcement on 6 June 2014 with the final set of proposals and released details as to how it wished to tax these trusts in the future. These proposals were complex for both existing non-pilot trusts and new non-pilot trusts, as well as pilot trusts themselves.

Autumn Statement announcement

The Chancellor has had a rethink and the announcement in the Autumn Statement is a simpler attack on the multiple trust arrangement which does not attempt to simplify the inheritance taxation of trusts. Most non-pilot trusts are unaffected.

The use of multiple trusts

From 6 April 2015, the pilot trusts receiving shares of residuary estates under wills will not have the same inheritance tax advantages as previously. For deaths after this date, the use of multiple trusts no longer saves inheritance tax during the lifetime of the pilot trusts. At a tax rate of broadly 6% for each trust every 10 years, the beneficiaries may prefer to inherit outright, and pay inheritance tax on their deaths, rather than fund the tax every 10 years.

The legislation as currently drafted may also affect other pilot trusts, not just those receiving shares of residuary estates under wills. Although the legislation is currently still in draft form and is for consultation, it would be wise to review your arrangements before a potential change in the law in April.