Property trusts are a legitimate estate-planning tool used by thousands of UK families. They can protect assets from care home fees, reduce inheritance tax, and help younger family members buy homes. But they must be set up correctly to avoid unexpected tax charges.\n\nWhat Is a Property Trust — A trust is a legal arrangement where one person (the settlor) transfers property to trustees, who hold and manage it for the benefit of beneficiaries. The property is no longer in the settlor's personal estate, though the tax treatment depends on the type of trust and whether the settlor retains any benefit.\n\nBare Trusts — The simplest form. The trustee holds the property on behalf of a named beneficiary who has an absolute right to the capital and income. Often used by parents buying property for adult children. The beneficiary is treated as the owner for tax purposes. No CGT on transfer to the beneficiary when they reach 18 if they have been the beneficiary since purchase. Stamp duty applies on the purchase as normal.\n\nDiscretionary Trusts — Trustees have discretion over who benefits and when. Useful for protecting assets across generations. However, an immediate inheritance tax charge of 20% applies on transfers above the nil-rate band (325,000). There are also 10-yearly periodic charges and exit charges when assets leave the trust. Income tax is paid at the trust rate (45% on non-dividend income). These charges make discretionary trusts expensive for holding a single residential property unless the estate is large.\n\nInterest in Possession Trusts — A named beneficiary has the right to income from the property (or to live in it) for life or a set period. After that, the property passes to the remaindermen (the next beneficiaries). Used in wills where the surviving spouse has the right to live in the property, with ownership passing to children on their death.\n\nMortgaging Trust Property — Getting a mortgage on trust-owned property is significantly harder than personal ownership. Most mainstream lenders will not lend to trusts. Specialist lenders and private banks may consider it, but terms are restrictive and rates are higher. Bare trusts where the beneficiary is an adult are easier to finance because the beneficiary can be treated as the borrower.\n\nGift with Reservation of Benefit — If you transfer your home into a trust but continue living in it without paying market rent, HMRC treats the property as still part of your estate for inheritance tax purposes. This is the most common mistake and completely negates the intended tax benefit. The property must either be genuinely given away (you move out) or you pay full market rent.\n\nPractical Advice — Trusts are not DIY territory. The interaction between CGT, IHT, income tax, and stamp duty creates traps for the unwary. Always use a specialist trust solicitor and a tax adviser experienced in property trusts. The setup costs (1,500 to 5,000 for a trust deed plus ongoing compliance) are a worthwhile investment against the potential tax savings — but only if the trust is appropriate for your circumstances.