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Before 2007, it was common for spouses to include Nil Rate Band Discretionary Trusts (NRBDTs) in their Wills.
Our Agricultural Solicitors investigate why this was, what has changed, and why.
If you own farming assets and have one in a will, you should consider updating your will.
The information below is still correct for now.
However, the recent Autumn Budget proposed that the full Agricultural Property Relief (APR)/Business Property Relief (BPR) will be capped at £1 million from 6 April 2026, and anything over will be taxed at 50% of the 40% Inheritance Tax rate.
Read more here.
Before answering this question, we first need to look at what the Nil Rate Band (NRB) is.
The NRB is an Inheritance Tax (IHT)-free amount that can be given away by everyone (to include the amount given away on death and in the 7 years before).
There are various exemptions and reliefs that take gifts outside of IHT, including Agricultural Property Relief (APR) and Business Property Relief (BPR), which have been discussed in other blogs.
Before 2007, when one spouse died, it was not possible to transfer the NRB to the other spouse, so it was a "use it or lose it" relief.
Spouses, therefore, included NRBDTs in their Wills so that, on first death, their NRB went into a discretionary trust and was "used up" to create an IHT-free pot of money.
It was common for the NRBDTs to include an outstanding loan from the spouse of the second to die rather than any actual assets.
Since 2007, the NRB has been transferable form one spouse to the other on first death, allowing the second spouse to claim up to a 100% increase on their NRB if the first to die had not used their NRB. NRBDTs have become much less common as a result, but there are a lot of old Wills that still include them.
While such clauses can present opportunities, they can also lead to pitfalls, so farmers and family farming business owners should think carefully about whether to include such a clause in their will.
Any gifts of agricultural or business property should be specifically gifted in a Will as, if the assets fall into residue and the residue is split between non-chargeable beneficiaries (spouses/charities) and chargeable beneficiaries (most other people, including children), then a proportion of any APR/BPR may be lost.
While NRBDTs can be drafted with the intention of receiving farming assets, they are most commonly drafted with the expectation that they will receive cash or a share in the family home, meaning that farming assets fall into residue and some of the APR/BPR available is lost.
The value of farming assets may change over time, and the rate of APR and BPR available for each asset may be difficult to predict. If the clause is not drafted properly, it may mean that some of the farming business or land may fall into the trust, and some fall into residue and pass to unintended beneficiaries, splitting the business/land up.
As an example, APR is only given on the agricultural value of an asset, so if there is land which has hope value over and above the agricultural value, this land may not all go into the trust.
Serious consideration needs to be given to whether the gift into trust include cash, as well as assets qualifying for APR/BPR.
The trustees will want some liquid assets to run the trust, but the cash may be needed to equalise out gifts to, e.g. children who won't inherit the farming business.
If you gift the whole farming business into trust, including that which does not qualify for APR/BPR and exceeds any NRB, tax may be payable on the first death, which would otherwise not be payable if it passed to a spouse.
You may not want all your farming and business assets to go into the one trust, or you may only want certain parts to go into trust.
We can help the Executors of the estate administer the estate and consider options for dealing with the trust.
If the will is old and the trust is not suitable, but the death was within the last 2 years, there are steps that can be taken to re-structure matters for IHT purposes, potentially eliminating any IHT issues created by the trust.
A Will is an important document that should be regularly reviewed. If your will has an NRBDT in it, odds are that it has not been reviewed for a long time.
Whether your will should contain an NRBDT depends on your particular circumstances, and there is no one-size-fits-all answer.
We can help you review your will and update it, if appropriate, or if you don't have a Will, we can help you put one in place.
You can contact one of our friendly Wills, Trusts, and Probate Solicitors.
If you have any questions or would like more information regarding Farming Wills and Nil Rate Band Discretionary Trusts get in touch with our Agricultural Solicitors on:
Simon has 10 years of experience acting as a Wills, Trusts, and Probate solicitor. Simon has expertise in administering both taxable and non-taxable estates, as well as complex estates such as those containing business and agricultural property, and cross-border issues.
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