A living trust inheritance tax is a legal arrangement where assets are transferred into a trust during a person's lifetime. This setup allows the person creating the trust to manage or delegate the management of these assets for the benefit of beneficiaries. While living trusts are a useful tool for estate planning, it is essential to understand how they interact with the UK inheritance tax (IHT).

Living Trust Inheritance tax in the UK is charged at 40% on estates above the nil-rate band. However, when assets are placed into a living trust, they are typically considered a "potentially exempt transfer" (PET) if the settler survives for seven years after making the transfer.

·         If the settler passes away within this seven-year period, the transferred assets may be subject to inheritance tax, although the tax rate can be reduced on a sliding scale depending on how many years have passed since the transfer.

·         For trusts created during a settler’s lifetime, there are also periodic charges known as the "ten-year anniversary charges" and "exit charges."

·         The ten-year anniversary charge occurs every ten years after the trust's creation and is levied at up to 6% of the trust’s value above the nil-rate band.

·         The exit charge applies when assets are removed from the trust and is proportional to the time elapsed since the last ten-year charge.

·         Living trusts offer flexibility in managing assets and can provide tax advantages, but they require careful planning to avoid unexpected tax liabilities.

It's advisable for individuals considering a living trust to consult with a financial advisor or tax specialist to navigate the complex inheritance tax landscape and ensure that their estate is managed in the most tax-efficient manner possible.