Contents

• Introduction
• Rysaffe planning
• Key considerations for Rysaffe planning
• Combining Rysaffe planning with investment bonds
• Implementing Rysaffe planning with investment bonds
• Illustrative example – trust and bond set-up

 

Introduction

Inheritance Tax (IHT) planning continues to be a priority for clients seeking to preserve wealth across generations. Rysaffe planning, using multiple trusts and investment bonds, offers a practical solution to reduce IHT exposure while maintaining control and flexibility.

When implemented correctly, Rysaffe planning can:

• Reduce an individual’s IHT liability
• Maximise the use of multiple Nil Rate Bands (NRBs)
• Minimise or eliminate periodic and exit charges
   

Rysaffe Planning

Rysaffe planning is based on the principle established in Rysaffe Trustee Co (CI) Ltd v IRC (2003). The ruling clarified that creating multiple relevant property trusts (such as discretionary trusts) on different days can prevent the aggregation of trust assets under the related settlement rules. Each trust is a separate settlement for IHT purposes.
 

Key considerations for Rysaffe planning

Separate settlement dates - Each trust must be settled on a different day, typically consecutive days, to ensure they are treated as distinct settlements.

Separate NRB’s - Each trust is treated as a separate settlement, benefiting from its own NRB (currently £325,000 and frozen until April 2031), which helps to reduce the overall IHT liability.

Avoids aggregation - By having separate settlements, aggregation is avoided when calculating entry, exit and periodic charges.

Entry charges - Rysaffe planning does not eliminate entry charges but avoids the related settlement provisions that would otherwise treat multiple trusts as one. Provided there hasn’t been any chargeable transfers in the previous seven years and each Chargeable Lifetime Transfer (CLT) is below the NRB, no entry charge arises.

Exit charges - If the value of the CLT is below the NRB, no exit charges apply within the first 10 years. After 10 years, exit charges are based on the rate of tax at the last 10-year anniversary. 

Periodic charge - Each trust will have its own NRB. Less of the trust fund is subject to periodic charge.

Using multiple settlements can reduce the periodic charge, which in turn lowers the exit charge.

In contrast if multiple trusts are created on the same day by the same settlor, they are treated as related settlements, which can result in:

• the value of each trust’s assets being aggregated;
• a single NRB is shared across all trusts; and
• higher periodic and exit charges, reducing the overall tax efficiency.
   

Combining Rysaffe planning with investment bonds

There are various investment options that can be used for Rysaffe planning, investment bonds could offer several advantages that make them particularly suitable.

Tax efficiency

• By spreading the value of the gifts across multiple trusts and investment bonds, each trust can potentially remain within the NRB, which will help avoid or reduce periodic and exit charges.
   
• Investment bonds are non-income producing assets, allowing trustees to control when a tax liability arises – typically when a chargeable event occurs.  For example, when there is an encashment from the bond, or when the relevant life assured dies and brings the investment bond to an end.
   
• Investment bonds allow for 5% tax-deferred withdrawals annually, offering flexibility for trustees to make distributions without immediate income tax consequences.
   
• It is possible to plan with bonds so that tax on bond gains can reflect the tax position of the beneficiary rather than the settlor or trustees. If the investment bond is an offshore bond, the beneficiary can use their personal allowance, savings rate for savings and personal savings allowance, which could potentially be up to £18,570 before any gain is taxable.

Control and flexibility

• Bonds simplify tax administration. There is no need to report income or capital when it arises within the underlying assets of the investment bond. The trustees need only to be concerned with tax reporting when a chargeable event occurs.
   
• Trustees own the investment bond and can manage distributions in line with the settlor’s wishes.

Generation wealth transfer

• The trust structure allows for a phased and controlled transfer of wealth to beneficiaries.
   
• Investment bonds are usually segmented, and one or more segments can be assigned to a beneficiary without triggering a chargeable event.

Implementing Rysaffe planning with investment bonds

Timing is critical. Each trust must be created and funded on a different day to ensure it is treated as a separate entity for IHT purposes.

The order of gifting determines how gifts are assessed for IHT. Creating trusts in the following order will generally have the least impact on exit and periodic charges. 

1. The Loan Trust (discretionary version).
2. Relevant property trusts - where the initial gift is a CLT, such as a discretionary trust or, interest in possession trust.
3. Absolute trusts – where the gift into trust is a Potentially Exempt Transfer (PET).

Illustrative example – trust and bond set-up

The following illustrates one way in which Rysaffe planning can be set-up. Bond providers will have their own distinct process to accommodate Rysaffe planning requests when using their own trust deeds. Always consult the provider to understand their requirements.

Trust and bond application dates

If the trustees are applying for the Bond, the provider is likely to suggest that each bond application and each trust are dated on consecutive days. 

If we consider an example where the adviser wants to set-up 2 Loan Trusts (discretionary versions) and a gift trust (discretionary version). The date of the bond application and trust deed should be made on consecutive days. 

This could be:

Loan Plan 1: Trust date 1 December 2025 – Application date 2 December 2025

Loan Plan 2: Trust date 2 December 2025 – Application date 3 December 2025

Gift Plan: Trust date 3 December 2025 – Application date 4 December 2025

Funding the trusts

Depending on the trust structure and the bond providers processes for creating new off the shelf trusts, the date the bond premium is received may determine the date the trust property is added to the trust or the gift into trust is made. Where the arrangement is set up like this, the provider is likely to suggest that the funds should be sent and received on consecutive days.

Following the example above:

Loan Plan 1: Funds received 14 December 2025

Loan Plan 2: Funds received 15 December 2025

Gift Plan: Funds received 16 December 2025

Advisers should liaise closely with the bond provider to ensure correct sequencing of trust creation, bond applications, and funding.

Additional considerations

• Clear records can demonstrate the separation of trusts. This can help defend against HMRC challenges regarding related settlements.
   

• The appointment of a professional trustee who understands Rysaffe planning can ensure compliance with HMRC rules, preserve tax advantages, and manage complex calculations for exit and periodic charges.

Rysaffe planning can offer a flexible and tax-efficient strategy for estate planning. Careful management of the timing of the creation of each settlement is key to ensuring that Rysaffe planning is successful.