You can put a rental property into a trust, and it does not matter how long you have owned it. The harder question is whether you should. For most landlords, moving a property into a trust has an upfront tax cost, and the trust then has its own tax and admin obligations for as long as it holds the property.
This guide is for landlords with rental property in Wales or England who are thinking about passing it on. It covers how a trust works, the tax on the way in and while the trust runs, the practical steps (your mortgage, your contract-holders, registration) and when a trust is not the right tool.
What Is A Trust?
A trust is a legal arrangement where one person (the settlor) transfers assets to others (the trustees) to hold for the benefit of a third group (the beneficiaries). Once the property is in trust, the trustees legally own it. You can be a trustee, but you are no longer the owner.
There are two ways to set one up:
- A lifetime trust is created now, while you are alive, usually by a trust deed.
- A will trust is written into your will and only takes effect when you die.
This guide focuses on lifetime trusts, mainly discretionary trusts, which are the most common choice for rental property because they give trustees the most flexibility. Bare trusts and life interest trusts are taxed differently, so if you are considering one of those, take advice on the specific structure.
Why Put A Rental Property Into A Trust?
The main reasons landlords consider a trust are:
- Reducing inheritance tax. If you survive the transfer by seven years, the property’s value at the time of transfer drops out of your estate. Any growth in value after the transfer builds up inside the trust rather than in your estate.
- Passing on wealth while keeping control. You decide who can benefit now, and you can be one of the trustees. Have at least two trustees, as two are normally needed to sell land, and leave a letter of wishes to guide them.
- Flexibility. In a discretionary trust, the trustees decide which beneficiaries, such as your children and grandchildren, receive income or capital, and when. That suits young or vulnerable family members and circumstances you can’t predict.
- Avoiding probate on the property. Property in a lifetime trust is not part of your estate, so the trustees can keep letting it or sell it without waiting for probate, avoiding the delay when a property can’t be sold until probate is granted. Property you still own personally goes through probate on rental properties as usual.
- Some protection for beneficiaries. No beneficiary owns the property, so their creditors generally cannot claim it if they go bankrupt. It is better protected on divorce than if owned outright, but a family court can still take it into account, so speak to our family finance solicitors if this is a concern. Being a potential beneficiary does not usually affect means-tested benefits, but payments from the trust can.
A trust is not a reliable way to avoid care home fees. Local authorities can treat putting assets into a trust as a deliberate deprivation of assets, and there is no seven-year cut-off for that rule.
Let’s look into this in more detail.
Inheritance Tax When You Make The Transfer
Putting property into a discretionary trust counts as a chargeable lifetime transfer for inheritance tax. That means tax can be due straight away, not just on your death.
- Up to the nil-rate band: no tax is due on the transfer. The nil-rate band is £325,000 and is frozen until at least April 2031. It is reduced by any other chargeable gifts you have made in the previous seven years.
- Above the nil-rate band: inheritance tax is due at the lifetime rate of 20% on the excess. If you pay this yourself rather than the trustees paying it from the trust, the tax is calculated on a grossed-up basis, which works out at 25% of the excess.
- Reporting: unless the value is comfortably within your nil-rate band, the transfer will usually need to be reported to HMRC, even where no tax is payable.
If you are married or in a civil partnership, each of you has your own nil-rate band. Where you own a property jointly, each of you can transfer your share.
If You Die Within Seven Years Of The Transfer
If you die within seven years, the inheritance tax on the transfer is recalculated. Tax is charged at the death rate of 40% on the value above the nil-rate band, and the 20% already paid is deducted. If you die between three and seven years after the transfer, taper relief reduces the tax.
The 20% paid at the time of the transfer is not refunded if the recalculated figure is lower.
If the property was worth less than your nil-rate band, there is no extra tax on the transfer itself if you die within seven years. But the transfer uses up nil-rate band that would otherwise have protected the rest of your estate, so your estate may pay more.
If you survive the transfer by seven years, it drops out of the calculation of inheritance tax on your estat.
Ongoing Inheritance Tax Charges On The Trust
A discretionary trust pays its own inheritance tax: up to 6% of the value above the nil-rate band on each tenth anniversary, and a proportionate exit charge when property or capital leaves the trust. These are often small or nil while the property stays under the nil-rate band, but rental property tends to grow in value, so it can move above the threshold.
Can You Still Receive The Rental Income?
No, not without losing the inheritance tax benefit. If you keep the rent, or you can benefit from the trust, HMRC treats it as a gift with reservation of benefit, and the property counts as part of your estate when you die, even after seven years. Our inheritance tax solicitors can look at your whole estate before you decide.
Other Tax And Practical Points
- Capital gains tax. Giving a property to a trust counts as selling it at market value, so CGT can be due on any gain. You can usually claim holdover relief, which postpones the gain until the trustees sell or pass the property on, but not if you, your spouse or your civil partner can benefit. You must report and pay any CGT due on UK residential property within 60 days.
- Land Transaction Tax. A gift with nothing paid in return does not usually trigger LTT in Wales. If the trustees take on a mortgage, though, the debt counts as the price paid, so LTT (or Stamp Duty Land Tax in England) can be due, possibly at higher residential rates.
- Your mortgage. You will need your lender’s consent, and many buy-to-let lenders will not lend to trustees. For a mortgaged property, this is often the deciding factor.
- Income tax on the rent. The trustees are taxed on the rental profit, not you: 45% for 2026/27 where the trust’s income is over £500, due to rise to 49% from April 2027 following the October 2026 Budget. Beneficiaries who pay a lower rate may be able to reclaim some tax on income paid to them.
- Registration and returns. Most lifetime trusts must be registered on HMRC’s Trust Registration Service within 90 days, and the transfer registered at HM Land Registry. The trustees also file a trust tax return each year.
What Happens To Your Contract-Holders?
Existing lettings carry on. Transferring the property into trust does not end your contract-holders’ occupation contracts in Wales, but the trustees become the landlord, and that brings obligations.
For property in Wales:
- Notice of the change: under the Renting Homes (Wales) Act 2016, the trustees must tell each contract-holder about the new landlord, with an address for documents, within 14 days. Missing this can stop them serving certain possession notices later.
- Rent Smart Wales: the trustees need to register as the landlord, and whoever manages the letting needs a licence.
- Deposits: any deposit must stay protected in an authorised scheme.
In England, the trustees take on the landlord’s duties under the Renters’ Rights Act 2025.
When A Trust May Not Be The Right Choice
A trust is unlikely to suit you if:
- You still rely on the rental income, because keeping it means you lose the inheritance tax benefit.
- The property is heavily mortgaged, and your lender will not consent, or refinancing would be costly.
- The property is worth well above your nil-rate band, and the 20% upfront charge outweighs the likely saving.
- You plan to sell soon, as the trustees would face CGT on the held-over gain.
- Your main aim is to protect the property from care fees, which the deprivation of assets rules make unreliable.
Other options may fit better, such as a gift directly to an adult child, a trust in your will, or life insurance to cover the inheritance tax risk during the seven years. Each has its own tax consequences, so you should compare them.
How Harding Evans Can Help
Our Wills & Probate team includes trust and estate practitioners who advise landlords on whether a trust is right for them, and then set it up. Because we also act for landlords on the property side, we can handle the whole process:
We advise landlords from our offices in Cardiff, Newport and Penarth. Contact us to talk through your options, including a free 30-minute consultation.
