Quick Summary:
Life interest trusts are legal arrangements that let you give someone the right to use or benefit from an asset—like a house or savings—during their lifetime, while keeping control over what happens to it after they die. They’re not just for the wealthy or politicians, and they’re not a secret loophole for dodging tax. For most people, they’re about family protection, clarity, and sometimes tax planning. Here’s what you need to know, with practical examples and clear steps for British families.

Life Interest Trusts

Recent headlines have put trusts and inheritance tax in the spotlight, thanks to the story of Prime Minister Keir Starmer and his family’s use of a trust involving a field in Surrey. For many, this raises questions: are trusts a clever way to avoid tax, or just a normal part of planning for the future? If you’re trying to get your head around inheritance tax, family property, and what’s best for your loved ones, you’re not alone. Let’s break down what a life interest trust is, how it works, and whether it’s something you should consider.

The Starmer Family, the Donkey Field, and a Life Interest Trust

Keir Starmer, now Prime Minister, grew up in a modest semi-detached house in Oxted, Surrey, with his parents Josephine (a nurse) and Rodney Starmer (a toolmaker). His mother, Josephine, lived with Still’s disease, a form of chronic arthritis, but was known for her energy and determination. The family’s home backed onto a seven-acre field, which Keir bought in 1996 for £20,000 while working as a human rights lawyer. The field was not a luxury investment—it was bought so his parents could care for rescue donkeys, a passion of Josephine’s that brought her joy even as her health declined.

The field, now said to be worth up to £10 million (though estimates vary), has never been developed and remains a green space. During the years Josephine was alive, she would make her way up to the field to tend to the donkeys, even as her mobility worsened. When she could no longer walk, the field allowed her to watch the animals from her home. After Josephine’s death in 2015 and Rodney’s in 2018, Keir inherited the field, along with a share in his parents’ house.

What Is a Life Interest Trust?

A life interest trust—sometimes called an “interest in possession” trust—is a legal arrangement where you give someone (the beneficiary) the right to use or receive income from an asset for their lifetime. When that person dies, the asset passes to someone else, often the person who set up the trust (the settlor) or their chosen heirs.

Example 1:
Imagine you own a house in Birmingham. You want your mum to live there for the rest of her life, but after she dies, you want the house to go to your children. You set up a life interest trust: your mum can live in the house, but she can’t sell it or leave it to anyone else. When she passes away, the house goes to your kids, just as you planned.

Example 2:
You have some savings and want your partner to receive the interest from them while they’re alive, but you want the money itself to go to your niece and nephew after your partner dies. A life interest trust can make this happen, giving your partner security and your family clarity about the future.

Why Did Keir Starmer Use a Trust?

The arrangement Keir Starmer used for the field is believed to be a life interest trust. He gave his parents the right to use the field for as long as they lived, but the ownership would revert to him after their deaths. This meant his parents could enjoy the field and care for their donkeys, but they couldn’t sell the land or leave it to someone else in their will.

For many families, this kind of trust is about more than money. In the Starmers’ case, it was about giving Josephine and Rodney the security and dignity of enjoying the field, while ensuring the land would eventually return to Keir. It also avoided the need to change wills or risk the field being split among multiple heirs.

Is a Life Interest Trust Tax Avoidance or Tax Evasion?

It’s important to be clear:

• Tax evasion is illegal. It means hiding assets or lying to avoid paying tax.

• Tax avoidance is arranging your affairs within the law to pay less tax. Some people see this as sensible planning; others see it as unfair, but it’s not illegal.

Setting up a life interest trust is not tax evasion. It’s a legal structure, recognised by English law, and used by thousands of families for all sorts of reasons. Whether it’s tax avoidance depends on your intention and the outcome.

If your main aim is to look after a loved one, and any tax benefit is just a side effect, most people wouldn’t call that avoidance. If you set up a trust mainly to reduce tax, it might be called avoidance, but it’s still within the law unless it breaks anti-avoidance rules.

How Does a Life Interest Trust Affect Inheritance Tax?

Inheritance tax is charged on the value of someone’s estate when they die. There’s a standard allowance (the “nil rate band”) that can be passed on tax-free, plus an extra allowance if a home is left to direct descendants.

If you give an asset to someone outright, it becomes part of their estate for IHT. If you set up a life interest trust and the asset reverts to you (or your chosen heirs) after the beneficiary dies, it may not be included in their estate for IHT, depending on the trust’s terms and when it was set up.

Key point:
Section 54(1) of the Inheritance Tax Act 1984 says that property in a life interest trust that reverts to the settlor is not part of the beneficiary’s estate for IHT. This can mean the asset avoids IHT when the beneficiary dies, but the rules are detailed and can change.

Example 3:
You buy a field and set up a trust so your parents can use it for life. When they die, the field comes back to you. If the field was simply given to your parents, it would be part of their estate for IHT. In a life interest trust, it may not be, depending on the details.

Did Keir Starmer Avoid Inheritance Tax?

Based on what’s been reported:

• The trust meant the field was not part of his parents’ estate for IHT.

• However, the total value of their estate was below the IHT threshold, so no tax was due anyway.

• The trust may have been good planning, but it didn’t actually save tax in this case.

This is a common situation for many families: you might set up a trust for peace of mind, but if your estate is below the IHT threshold, it won’t make a difference to the tax bill.

Should You Use a Life Interest Trust?

A life interest trust can be a practical way to manage family assets, especially if you want to help someone during their lifetime but keep control over what happens next. It’s not a magic solution for avoiding tax, and the rules are complex. If your estate is well below the IHT threshold, it may make no difference at all.

Things to consider:

• Who do you want to benefit from the asset during their lifetime?

• Who should own it after they die?

• What is the value of your estate, and is IHT likely to apply?

• Are there family circumstances (like second marriages, stepchildren, or vulnerable relatives) that make a trust helpful?

Example 4:
You and your partner both have children from previous relationships. You want your partner to live in your house if you die first, but you want your children to inherit the house eventually. A life interest trust can give your partner security, while making sure your children get the house in the end.

What Are the Downsides?

Trusts aren’t always the right answer. They can be more complicated to set up and run than a simple will. There may be extra paperwork, and sometimes ongoing costs for managing the trust. If you’re thinking about a trust, it’s worth writing down your goals and talking them through with your family.

Final Thoughts

Trusts are not just for the wealthy or politicians. They’re a normal part of English law, used by families up and down the country for all sorts of reasons—family protection, asset management, and sometimes tax planning. The key is to be clear about your goals and to understand the rules.

If you want to help a loved one enjoy an asset but keep control over its future, a life interest trust may be worth considering. But it’s not a guarantee of tax savings, and it’s not tax evasion. If you’re thinking about it, start by listing your assets, thinking about who you want to benefit, and considering whether your estate might be subject to inheritance tax. The rules can change, so it’s wise to keep up to date.

Disclaimer:
This article is for general information only. It’s not legal or tax advice.

Caira is here for you 24/7, ready to help you make sense of trusts, inheritance tax, and family planning. Backed by tens of thousands of documents, spreadsheets, screenshots and photos, I can answer your questions and help you explore your options—no matter how unique your situation. If you’re unsure where to start, just open a chat and let’s talk through what matters most to you.