Using Rysaffe planning with investments

Last month, we looked at using Rysaffe planning with protection policies. This month, we are looking at Rysaffe planning with investments.

As a reminder, Rysaffe planning is a process where assets that are to be placed in trust are split up and put into a series of trusts established on different days, rather than being made subject to a single trust. Provided each trust is truly an independent trust and is established on a different day, each trust will be entitled to its own nil-rate band, thus giving the potential to reduce inheritance tax.

To undertake Rysaffe planning, the assets must be capable of being fragmented across a series of trusts. One such asset would be investment bonds. These can either be issued as a series of (smaller) investment bonds, each into a separate trust, or, where the bond is made up of a number of segments (and, ideally, groups of segments can be independently administered), groups of segments can be assigned to separate trusts. This is also relevant to existing investment bonds to be made subject to trust.

At its 10-year anniversary, each trust is entitled to a nil rate band of, currently, £325,000 less the value of the settlor’s lifetime cumulation in the 7 years before the trust was created. This will clearly include any chargeable transfers made to other trusts in the few days before the current trust began.

To the untrained eye, it might not be thought that it is worth making an investment subject to several trusts. However, that is not the case because, by using Rysaffe planning, any investment growth in other trusts will not impact on the calculation at the 10-year anniversary of a particular trust.

Let’s look at an example:

Mike is investing £300,000 into an investment bond written subject to a discretionary trust for the benefit of his 3 children and their families.

Ignoring any available £3,000 annual exemption(s), Mike is treated as making a chargeable lifetime transfer (CLT) of £300,000. He has made no CLTs in the previous 7 years and so no immediate inheritance tax charge arises.

Let’s say the bond doubles in value to £600,000 over 10 years. No payments have been made to beneficiaries during that time. The periodic charge payable by the trustees would be 6% (20% of 30%) of the excess of the bond’s value over the trustees’ nil rate band. So, assuming the nil rate band is still £325,000, a periodic charge of £16,500 is payable on this first 10-year anniversary. If, after 20 years, the bond was worth £1 million, the periodic charge increases to £40,500 on the second 10-year anniversary.

Mike instead decides to undertake Rysaffe planning and invests in 3 separate investment bonds (Bonds 1,2 & 3) for £100,000 each and makes each bond subject to a separate trust (Trusts A, B & C) established on different days with each trust being slightly different, for example, with a different grandchild being named as a default beneficiary.

At the first 10-year anniversaries, each bond is worth £200,000 and the periodic charges are:

1. Bond 1, valued at £200,000, is in Trust A. The value of the trust would therefore fall within the trustees’ £325,000 nil rate band
2. Bond 2, valued at £200,000, is in Trust B. The trustees have an available nil rate band of £225,000 (£325,000 less the £100,000 CLT initially made to Trust A). No periodic charge therefore arises.
3. Bond 3, valued at £200,000, is in Trust C. The trustees have a nil rate band of £125,000 (£325,000 less the £100,000 CLTs to Trusts A and B). The periodic charge is £4,500 (6% of £75,000).

So the inheritance tax saving is £12,000 at the first 10-year anniversaries. At the second 10-year anniversaries, assuming the nil rate band remains £325,000, the periodic charges total £19,500 with a potential saving of £21,000.

Based on these figures, the periodic charges could have been reduced still further to £2,100, with a potential saving of £14,400, at the first 10-year anniversary, if the initial investment of £300,000 had been split between 5 investment bonds for £60,000 each spread across 5 trusts. Again, the periodic charges at the second 10-year anniversary are also lower.

Because the investment is only being made using Mike’s money, his wife, Sheila, could be a potential beneficiary under the trust. This would mean that benefits could be appointed in her favour under the trust should circumstances change but, of course, any inheritance tax advantages could then be neutralised if Mike were still alive.

Had the investment been made jointly by Mike and Sheila, the tax planning benefits of setting up more than one trust could be potentially greater because a jointly settled investment is treated, for inheritance tax purposes, as two single settlor trusts, one created by Mike and one by Sheila. Each of these notional trusts would have its own nil rate band - so effectively £650,000 (2 x £325,000) per jointly settled trust. In these circumstances, using the figures in the example above, if they jointly settled two trusts, no periodic charges arise at both the 10-year and 20-year anniversaries.

Establishing multiple trusts could lead to more administration and, possibly, higher costs but these need to be balanced against the potential tax savings.

Appropriate estate planning will depend on the circumstances of the individual, and no single strategy fits every family; the right approach requires a comprehensive view of your entire estate.

If you, or someone you know, would like guidance on succession planning or inheritance tax matters, contact us to arrange a free initial consultation.

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The Financial Conduct Authority does not regulate tax planning, estate planning or trusts.

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The information in this article is correct as at 16/04/2026.