The Downsides of Putting Your House in a Trust Nobody Tells You About

Placing your house in a trust is one of the most common estate planning strategies in England and Wales — and for good reason. But like any significant legal arrangement, it comes with considerations that deserve honest examination before you commit.

While properly structured trusts can offer powerful protection against care fees, inheritance tax (IHT), divorce, and probate delays, they also involve trade-offs — including changes to how you control and manage the property, tax implications that vary depending on the type of trust used, and ongoing administrative responsibilities. The key is understanding which drawbacks are genuine concerns and which are simply the result of poorly structured trusts or outdated advice. You can read more about the potential dangers of putting your home into a trust on our blog post.

We will guide you through these considerations honestly, so you can weigh the genuine risks against the substantial benefits and make a truly informed decision about your estate.

Key Takeaways

• Transferring your home into certain types of trust means the trustees become the legal owners — but a well-drafted trust deed with appropriate powers can preserve your day-to-day control.
• Tax implications vary enormously depending on the type of trust used. Some trusts preserve IHT reliefs; others may trigger charges. The type of trust matters more than the act of creating one.
• Trust arrangements carry setup and ongoing costs — but when compared to the potential cost of care fees (£1,200–£1,500 per week) or a 40% IHT bill, they can represent exceptional value.
• If a local authority believes the trust was set up to avoid paying care fees, they may treat the settlor as still owning the asset under the “deprivation of assets” rules — but this can be managed with proper planning and documented legitimate purposes.
• Choosing the wrong type of trust, or setting one up without specialist advice, can create unintended consequences for beneficiaries and the family as a whole.

Understanding Trusts and Their Functionality

For many UK homeowners, placing their house in a trust seems like an obvious step — but understanding how trusts actually work under English law is essential before proceeding. A trust is a legal arrangement (not a legal entity — trusts have no separate legal personality) where assets are held by trustees for the benefit of the beneficiaries. England invented trust law over 800 years ago, and the principles remain central to how property and wealth are managed today.

What is a Trust?

A trust is a legal arrangement in which the legal ownership of an asset — such as your home — is separated from the beneficial ownership. The trustees hold the legal title and manage the asset, while the beneficiaries are the people who ultimately benefit from it. This separation of legal and beneficial ownership is the foundation of English trust law and is what gives trusts their protective power.

The key components of a trust include:

• The Settlor: The person who creates the trust and transfers assets into it. In many family trusts, the settlor can also be appointed as one of the trustees, keeping them involved in decisions.
• The Trustees: The individuals responsible for managing the trust assets in accordance with the trust deed. A minimum of two trustees is required. They are the legal owners of the trust property.
• The Beneficiaries: Those who benefit from the trust assets. In a discretionary trust, no beneficiary has a fixed right to any income or capital — the trustees decide who receives what, and when.

Types of Trusts Available in the UK

UK trust law classifies trusts primarily by when they take effect (lifetime trust vs will trust) and by how they operate. Understanding these distinctions is crucial because choosing the wrong type of trust is where most problems begin.

The main types of trusts used in property planning are:

1. Discretionary Trusts: By far the most common type used for property protection (around 98–99% of family trusts). Trustees have absolute discretion over who receives income or capital, and when. No beneficiary has a fixed entitlement, which is what provides protection against care fee assessments, divorce claims, and creditors. Can last up to 125 years under the Perpetuities and Accumulations Act 2009.
2. Bare Trusts: The beneficiary has an absolute right to the trust capital and income once they reach age 18. The trustee is merely a nominee with no real discretion. These provide no IHT efficiency, no care fee protection, and no protection against a beneficiary’s divorce or bankruptcy. Under the principle in Saunders v Vautier, an adult beneficiary can simply collapse the trust and take the assets.
3. Interest in Possession Trusts: An income beneficiary (known as the life tenant) receives the income or use of the trust property during their lifetime, after which the capital passes to the remainderman (often the children). Commonly used in will trusts to prevent sideways disinheritance — for example, ensuring a surviving spouse can live in the property but cannot divert it away from the children of a first marriage.
4. Lifetime Trusts vs Will Trusts: A lifetime trust takes effect during the settlor’s lifetime and can protect assets immediately. A will trust only takes effect on death and offers no protection during the settlor’s lifetime against care fees, divorce, or bankruptcy.

A note on revocable versus irrevocable trusts: this distinction is a feature of lifetime trusts, not a separate category. Revocable trusts offer virtually no IHT benefit because HMRC treats the assets as still belonging to the settlor (a “settlor-interested” trust). For meaningful asset protection and IHT planning, an irrevocable trust is the standard. Well-drafted irrevocable trusts can include “standard and overriding powers” that give trustees defined flexibility without making the trust revocable. When considering placing your house in a trust, understanding these differences is crucial to avoiding the genuine house trust UK disadvantages and property trust drawbacks that arise from choosing the wrong structure.

Disadvantages Related to Property Transfer

When considering putting your house in a trust, it’s important to understand the genuine trade-offs. Transferring a property into a trust changes the legal ownership structure, and this has real implications that homeowners need to consider carefully.

Potential Loss of Control Over Your Home

This is probably the most common concern — and it deserves an honest answer. When you transfer your house into a trust, the trustees become the legal owners. If you are not one of the trustees, you are relying on others to act in accordance with the trust deed. Even if you are a trustee (which is common and recommended), you must act in the interests of the beneficiaries, not solely in your own interest.

In practice, a well-drafted trust deed addresses this concern directly. For example, Mike Pugh’s Family Home Protection Trust allows the settlor to remain as a trustee and includes carefully defined powers that preserve day-to-day control. The settlor typically continues to live in the property, maintain it, and make ordinary decisions about its use. The trust deed can also include a clear process for removing and replacing trustees if relationships break down.

However, there are genuine limitations. If you wish to sell the property, all trustees must agree and sign the transfer. If the property is in a discretionary trust, the proceeds of any sale belong to the trust, not to you personally. And if you want to raise money against the property (for example, through equity release), this becomes more complex when the property is held in trust. These are real considerations — not reasons to avoid trusts altogether, but reasons to ensure the trust is properly structured from the outset.

Capital Gains Tax Implications

Capital Gains Tax (CGT) is often cited as a major concern when transferring property into a trust — but the reality is more nuanced than many articles suggest. Yes, transferring a property into a trust is treated as a disposal for CGT purposes. However, two important reliefs commonly apply:

Principal Private Residence Relief (PPR): If the property you are transferring is your main home and you have lived in it as your residence, PPR normally eliminates any CGT on the transfer. This means most homeowners transferring their family home into trust will pay zero CGT at the point of transfer.

Holdover Relief: For certain types of trust (including discretionary trusts), holdover relief may be available, meaning no immediate CGT charge arises — the gain is instead “held over” and only becomes relevant when the trustees eventually dispose of the asset.

Where CGT can become a genuine issue is if the property is not your main residence (for example, a buy-to-let or second home), or if the trust later sells the property. Trusts have a reduced annual CGT exempt amount (currently £1,500, compared to £3,000 for individuals), and the CGT rate for residential property held in trust is 24%. These are important figures to factor into your planning.

For more detailed guidance on how to put your house in a trust in the UK, you can visit our page on the process and implications.

Costs Associated with Setting Up a Trust

When considering placing your house in a trust, it’s fair to ask: what does this actually cost? The answer is more reasonable than many people expect — but there are both upfront and ongoing costs to be aware of.

Legal Fees and Administrative Costs

Setting up a trust requires a properly drafted trust deed, which should be prepared by a specialist. Straightforward property trusts typically start from around £850, with most family trusts costing between £850 and £2,000 depending on complexity. More complex situations involving multiple properties or detailed tax planning may cost more. MP Estate Planning is the first and only company in the UK that actively publishes all prices on YouTube, so there are no hidden surprises.

The initial costs typically include:

• Drafting and executing the trust deed
• Registration with the Trust Registration Service (TRS) — mandatory within 90 days of creation for all UK express trusts
• Land Registry transfer or restriction (Form TR1 for unmortgaged properties, or Form RX1 for a restriction on title)

To put these costs in perspective: the average cost of residential care in England is currently £1,200–£1,500 per week. A trust costs roughly the equivalent of one to two weeks of care — a one-time fee versus ongoing costs that continue until death or until your savings are depleted to £14,250.

Ongoing Maintenance Expenditures

Beyond the initial setup costs, there are ongoing obligations to be aware of. These include:

• Keeping the TRS registration up to date (any changes to trustees, beneficiaries, or trust details must be reported)
• Filing an SA900 trust tax return with HMRC if the trust has taxable income or gains
• Any changes or updates to the trust deed, such as appointing new trustees or making distributions

For most family trusts holding the family home where the settlor continues to live in the property, the ongoing costs are relatively modest. There is no rental income to report and no complex accounting required. Where costs can increase is if the trust holds investment property generating rental income, or if the trustees need to take professional advice on a specific decision. When you compare the cost of a trust to the potential costs of care fees or family disputes, it’s one of the most cost-effective forms of protection available.

Impacts on Inheritance Tax Planning

When considering placing your house in a trust, the IHT implications require careful analysis. The impact on your inheritance tax position depends entirely on which type of trust you use and how it is structured — get this right, and a trust can be a powerful IHT planning tool. Get it wrong, and you could end up worse off.

Changes in Tax Liability

Placing your house in a trust changes how HMRC treats the asset for IHT purposes. For context, IHT is charged at 40% on the value of your estate above the nil rate band (NRB) of £325,000 per person — a threshold that has been frozen since 2009 and is confirmed frozen until at least April 2031. This freeze is the single biggest reason ordinary homeowners are now caught by IHT, with the average home in England now worth around £290,000.

A discretionary lifetime trust is subject to the “relevant property regime,” which involves three potential charges: an entry charge (20% on value above the available NRB — zero for most family homes below £325,000), a periodic 10-year charge (maximum 6% of trust value above the NRB — again, often zero), and exit charges when assets leave the trust (proportional to the last periodic charge — typically less than 1%). For most families putting a single property valued below the NRB into trust, all three of these charges will be nil or negligible.

However, if you transfer your property into trust but continue to benefit from it — for example, living in the home rent-free — HMRC’s “gift with reservation of benefit” (GROB) rules may treat the property as still being part of your estate for IHT purposes, even if you survive seven years. This is a critical issue that specialist trust structures (such as Mike Pugh’s Family Home Protection Trust Plus) are specifically designed to address.

Potential Loss of the Residence Nil Rate Band

This is one of the most significant and genuinely important considerations. The Residence Nil Rate Band (RNRB) provides an additional £175,000 per person (£350,000 for a married couple) of IHT-free allowance — but only if a qualifying residential interest is passed to direct descendants (children, grandchildren, or step-children). It is not available if the property passes to siblings, nieces, nephews, friends, or charities.

If your home is transferred into a standard discretionary trust, it may no longer qualify for the RNRB because the property is not being inherited directly by direct descendants — it is held within the trust. This could mean losing up to £350,000 of IHT-free allowance for a couple, potentially creating an additional IHT liability of up to £140,000 (40% of £350,000).

This is a genuine downside — but it is not an inevitable one. Specialist trust products, such as Mike Pugh’s Family Home Protection Trust Plus, are specifically structured to retain the RNRB while still providing protection. The trust structure and the trust deed wording are critical to achieving this outcome, which is why this is not a DIY exercise.

To illustrate the potential impact:

This example highlights why the type of trust and the quality of the trust deed are so important. The difference between a properly structured trust and a poorly structured one can be worth £140,000 in IHT savings alone.

Complications with Mortgage and Loans

When considering placing your house in a trust, it’s important to understand how this interacts with any existing mortgage. This is one of the most practical day-to-day considerations, and getting the approach wrong can create real problems.

Restrictions from Lenders

Most mortgage lenders will not consent to the legal title of a mortgaged property being transferred into a trust. Their security is registered against the legal title, and they want to know exactly who owns it. This is a fact, not a theoretical risk. Some lenders may:

• Refuse consent to any transfer of legal title while the mortgage is outstanding
• Treat a transfer as a breach of mortgage conditions, potentially triggering early repayment
• Require the mortgage to be repaid in full before any transfer can proceed

However, there is a well-established solution. English trust law distinguishes between legal ownership (whose name is on the title at Land Registry) and beneficial ownership (who actually benefits from the property). For mortgaged properties, a Declaration of Trust can transfer the beneficial interest into the trust while the legal title remains in the settlor’s name to satisfy the lender. As the mortgage reduces over time and the property value increases, all of the growth occurs within the trust. Once the mortgage is eventually paid off, the legal title can be transferred to the trustees using a TR1 form.

Impact on Remortgaging Options

Remortgaging a property where the legal title is held by trustees can present challenges. Most mainstream lenders are not set up to lend to trusts, which can:

1. Limit your choice of mortgage products and lenders
2. Restrict your ability to raise additional funds through the property
3. Complicate equity release arrangements, as most equity release providers require straightforward personal ownership

This is a genuine practical limitation. If you anticipate needing to remortgage, raise capital, or access equity release in the future, this needs to be discussed with your trust specialist before the trust is established. A properly planned approach — potentially using the Declaration of Trust method for mortgaged properties, or timing the trust creation for after the mortgage is cleared — can address most of these issues.

Issues with Joint Ownership

Joint ownership of a property within a trust can introduce several complexities that need careful consideration. When a married couple or co-owners hold a property together, the way that ownership is structured — and how it interacts with the trust — has significant implications for protection and tax planning.

Complications with Co-Owners

When co-owners are involved, decisions regarding the property and the trust must account for everyone’s interests. The critical first step is understanding how the property is currently held and whether the ownership structure needs to change before the trust is created.

Some key issues to consider include:

• Whether the co-owners hold as joint tenants (equal shares, right of survivorship) or tenants in common (defined shares, no automatic survivorship) — this fundamentally affects what happens on death
• If one co-owner wants to place their share in trust but the other does not, the property must be held as tenants in common to allow this
• Potential disagreements about whether to create a trust at all, or about the terms of the trust — for example, one partner may want to protect the property for children from a previous relationship

Survivorship and Ownership Structure

The distinction between joint tenancy and tenancy in common is fundamental when trusts are involved, because it determines whether the right of survivorship applies — and this can completely undermine a trust if not properly addressed.

This is one of the most commonly overlooked issues in estate planning. A couple may spend time and money setting up a trust, only for the right of survivorship to bypass it entirely because nobody severed the joint tenancy. Understanding this interaction between ownership structure and trust planning is essential to avoid expensive mistakes.

Restrictions on Access to Funds

When your home is held in trust, the property is no longer a personal asset you can deal with freely — and this has practical consequences for accessing the value locked up in it. While trusts provide protection precisely because the asset is no longer “yours” in the legal sense, this same feature creates limitations that need to be understood upfront.

The most common concern is that you cannot simply sell the property or use it as security whenever you choose. In a discretionary trust, the trustees collectively make decisions about the trust assets, and those decisions must be in the interests of the beneficiaries as a whole — not just the settlor.

Difficulties in Liquidating Assets

Selling a property held in trust is not impossible, but it involves more steps than selling a property you own personally. Key considerations include:

• All trustees must agree to the sale and sign the transfer documents — if a trustee is unavailable, abroad, or uncooperative, this can cause delays.
• The sale proceeds remain in the trust. The trustees decide how those funds are used or distributed, in accordance with the trust deed.
• If the trust is a discretionary trust, the beneficiaries have no right to demand that the property be sold or that they receive the proceeds.

For more information on the potential drawbacks of trusts, you can visit this resource that outlines some of the disadvantages you need to be aware of.

Limitations in Cash Flow Management

Having your home in a trust can affect your financial flexibility in several practical ways:

1. You cannot use a trust-held property as personal collateral for a loan — lenders want security over an asset owned by the borrower, not by a trust.
2. Equity release products are generally not available for trust-held properties, as most providers require direct personal ownership.
3. If you need cash urgently, extracting funds from a trust takes time and may require trustee meetings, professional advice, and potentially HMRC considerations around exit charges (though these are typically very small — often less than 1%).

These limitations are genuine trade-offs. However, they are also the very mechanism that provides protection. The fact that the property is not freely available to the settlor is exactly what protects it from care fee assessments, creditors, and other claims. The key is to plan ahead: ensure you retain sufficient liquid assets outside the trust for everyday needs, and structure the trust so that the trustees have clear powers to act when needed. As Mike Pugh puts it: “Plan, don’t panic.”

Legal and Administrative Burdens

When you place your house in a trust, you are creating a legal arrangement that carries ongoing responsibilities. These are not insurmountable — but they are real, and anyone considering a trust should understand what is involved.

The Need for Specialist Advice

Trust law is a specialist area. As Mike Pugh often says: “The law — like medicine — is broad. You wouldn’t want your GP doing surgery.” A general-practice solicitor who handles conveyancing, wills, and family law may not have the depth of expertise needed for trust planning. Key areas where specialist advice is essential include:

• Drafting the trust deed to ensure it achieves the intended objectives — including preserving the RNRB, avoiding GROB, and structuring trustee powers correctly
• Advising on the IHT, CGT, and income tax implications specific to your situation
• Ensuring the trust is properly registered with the Trust Registration Service within 90 days of creation

The cost of specialist advice is modest compared to the potential consequences of getting it wrong. A poorly drafted trust deed can cost a family tens or even hundreds of thousands of pounds in lost tax allowances or failed protection.

Complexity of Trust Management

Once the trust is established, the trustees have ongoing duties. The level of complexity depends on the type of trust and what assets it holds, but the core responsibilities include:

For a straightforward family trust holding the family home where the settlor continues to live in the property, the ongoing administration is relatively light. There is no rental income to account for, no annual distributions to manage, and the TRS registration is a one-off task that only needs updating when details change. The administrative burden is real but proportionate — and significantly less than the administrative burden that falls on executors dealing with a contested estate or a care fee assessment.

Potential Family Disputes

One of the lesser-discussed drawbacks of house trust arrangements is the potential for family disagreements. A trust involves multiple people — the settlor, trustees, and beneficiaries — and where people and property are involved, conflict can arise.

Conflicts Over Trust Terms

In a discretionary trust, no beneficiary has a fixed entitlement to anything. The trustees decide who gets what, and when. While this is precisely what makes discretionary trusts so effective for protection, it can also be a source of tension if beneficiaries feel they should be entitled to a share:

• Beneficiaries may disagree with the trustees’ decision to distribute (or not distribute) trust assets — particularly if some children feel they are being treated differently from siblings.
• If a beneficiary is going through financial difficulties, they may pressure the trustees to make a distribution, even when this might not be in the best interests of the trust as a whole.
• Conflicts can arise when a settlor has children from multiple relationships, and the trust terms are perceived as favouring one set of children over another.

Challenges in Family Dynamics

Family dynamics play a crucial role in how smoothly a trust operates in practice. A trust deed can be legally perfect but still cause problems if the family relationships are strained. Common challenges include:

These risks can be significantly reduced with good planning. A well-drafted letter of wishes (a non-binding document that guides the trustees on the settlor’s intentions) can provide clarity and reduce the scope for disagreements. Choosing trustees carefully — and including a clear process for removing and replacing trustees in the trust deed — also helps. The key message is: think about the family dynamics before choosing your trustees, not after.

Implications for Future Property Transactions

When considering placing your house in a trust, it’s important to understand how this may affect your ability to deal with the property in future. While the practical impact is often less dramatic than people fear, there are genuine considerations to plan for.

A property held in trust is legally owned by the trustees, not by you personally. This means any future transaction — whether a sale, a remortgage, or a rental arrangement — involves the trustees rather than you as an individual. For most day-to-day purposes this makes little difference, but for certain transactions it adds a layer of process.

Difficulties in Selling Your Home

Selling a home held in a trust is absolutely possible — trusts sell properties regularly. However, the process has some additional steps compared to a straightforward personal sale. All trustees must agree to the sale, and all must sign the transfer documents. A minimum of two trustees is required, and Land Registry allows up to four trustees on a property title.

In practice, the biggest potential difficulty arises if a trustee becomes incapacitated, dies, or becomes uncooperative. A well-drafted trust deed will include provisions for replacing trustees in these circumstances, but this is another reason why the quality of the trust deed matters enormously. Buyers and their solicitors may also ask additional questions about the trust structure during the conveyancing process, which can add time — but experienced conveyancers deal with trust sales routinely.

Limitations on Rental Opportunities

If you plan to rent out the property, the trust structure affects the management and tax treatment of the rental income. Trust rental income is taxed at the trust rate of 45% (with the first £1,000 at basic rate), which is higher than most individual tax rates. This can make trust-held rental properties less tax-efficient than personally held ones.

The trustees must manage the tenancy and make decisions about the property in accordance with the trust deed. If you as the settlor are also a trustee, you will still be involved in these decisions — but you cannot act alone, and all decisions should be documented. Potential tenants are generally unaware of (and unconcerned about) whether a property is held in trust, so the ownership structure is unlikely to affect lettability.

For more detailed information on putting a house in a trust in the UK, you can visit our page on putting a house in a trust. This resource provides comprehensive guidance on the process and its implications.

Summary: Weighing the Risks of a Trust for Your Home

Placing your house in a trust is one of the most effective estate planning decisions a homeowner can make — but only if it is the right type of trust, properly structured, and set up with specialist advice. The disadvantages discussed in this article are genuine, but most of them arise from poorly chosen trust types, badly drafted trust deeds, or a failure to take proper advice in the first place.

Key Considerations Before Placing Your Property in a Trust

Before making a decision, weigh the genuine downsides — including changes to control, potential loss of the RNRB, mortgage complications, and ongoing administration — against the substantial benefits. A properly structured trust can protect your family home from care fee assessments (currently £1,200–£1,500 per week), bypass probate delays (which can freeze sole-name assets for months, sometimes over a year when property is involved), shield against a beneficiary’s divorce (with a UK divorce rate of around 42%), and provide IHT efficiency when correctly planned. Trusts are not just for the rich — they’re for the smart.

Making an Informed Decision

To make an informed decision about putting your house in a trust, seek advice from a specialist in trust law — not a general-practice solicitor who handles a bit of everything. Tools like MP Estate Planning’s Estate Pro AI can provide an initial 13-point threat analysis of your estate to identify where the risks lie. For more information on the process, you can visit our guide on how to put your house in a trust in the UK. Understanding what are the disadvantages of putting your house in a trust UK is important — but equally important is understanding that most of these disadvantages are avoidable with the right advice. Not losing the family money provides the greatest peace of mind above all else.