Putting your house in a trust is often marketed as a way to protect assets, reduce inheritance tax, or pass property to children. But for many homeowners, the downsides outweigh the benefits. Here is what you need to understand before you proceed.
You Lose Control of Your Own Home
With an irrevocable trust, the trustees — not you — manage the property. You cannot sell, remortgage, or make decisions about the property without trustee consent. Many homeowners are surprised to discover how much autonomy they give up the moment the transfer is made.
The Tax Benefits Are Often Overstated
If you continue to live in the property after transferring it into trust, HMRC treats it as a 'gift with reservation of benefit' — meaning it remains in your taxable estate regardless of the trust. The inheritance tax saving you were promised may simply not materialise.
Discretionary trusts also face a 10-year anniversary charge of up to 6% of the trust's value, and an exit charge when assets leave the trust. These charges can significantly erode the value of the estate over time.
Mortgages and Insurance Become Complicated
Most residential mortgage lenders will not lend against a property held in trust. If you have an existing mortgage, your lender's consent is required before transferring the property — and many lenders will refuse. Buildings insurance policies may also need to be reissued in the name of the trustees.
The Costs Are Higher Than You Might Expect
Setting up a property trust requires specialist solicitor fees, ongoing trustee management fees, annual trust tax returns, and registration with HMRC's Trust Registration Service. These costs accumulate over time and can be substantial.
What to Do Instead
For most homeowners, a well-drafted will achieves the same estate planning goals at a fraction of the cost and complexity. Changing from joint tenants to tenants in common is another simple, low-cost option. A specialist solicitor can help you identify the most appropriate approach for your circumstances.