Glossary · UK
What is Flexible Reversionary Trust?
An Inheritance Tax planning trust structure under which pre-set future payments (reversions) to the settlor can be cancelled or deferred if not needed, offering more flexibility than a fixed-term arrangement while still removing gifted capital from the settlor's estate over time.
Full Definition
A flexible reversionary trust is a form of trust used in Inheritance Tax planning in which the settlor gifts a sum into trust (typically invested in an investment bond divided into a large number of individual policy segments), but retains the right to receive back pre-set "reversions" -- essentially, scheduled future capital payments -- at specified future dates, commonly annually. Unlike a straightforward outright gift, which the settlor cannot later change their mind about accessing, a flexible reversionary trust builds in a structured way for the settlor to receive money back over time if they need it, while allowing each individual reversion to be deferred or cancelled if, when the scheduled date arrives, the settlor does not actually need that particular payment. Each reversion the settlor chooses not to take (by cancelling or deferring it before the scheduled date) effectively becomes an outright gift to the trust's beneficiaries at that point, starting its own separate Potentially Exempt Transfer or chargeable transfer clock (depending on the type of trust), and permanently leaving the settlor's estate once the relevant survival period has passed. This structure is designed to combine the flexibility of "keeping options open" -- since the settlor is not forced to decide, at the outset, exactly how much access they will need in future -- with the Inheritance Tax efficiency of an outright gift for the reversions ultimately given up, offering more adaptability than a fixed-term arrangement with a rigid repayment schedule set in stone from the start. Because the value of any reversion not yet cancelled generally remains part of the settlor's estate until they either take it or formally give it up, and the tax treatment depends heavily on the precise trust deed drafting and the type of trust used (bare, discretionary, or interest in possession), flexible reversionary trusts are a specialist estate planning tool typically arranged with professional advice, most often as part of a broader plan combining investment bond taxation, trust law, and Inheritance Tax planning, rather than a do-it-yourself arrangement.