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Trust and Tax Help Guide 2022

Even though there are several types of trusts, they all offer ways to manage people's assets (e.g. cash, property, land, and other financial investments such as shares).

This section contains information about UK trusts and taxation, reasons for setting up a trust, and how they are taxed by HM Revenue and Customs (HMRC).

Primary Reasons for Setting Up a Trust (UK)

  • You can control and protect your family’s assets.
  • To help youngsters handle their financial affairs.
  • For individuals who are unable to handle their own affairs (e.g. because they lack mental capacity).
  • To pass on property and assets while you are still alive.
  • UK law uses the rules of inheritance if someone dies without making a will (England and Wales).
  • Will trusts are used to pass assets to others following a death.

Note: The trust and taxes guide, explaining how trusts are taxed by HMRC, is also available in Welsh language (ymddiriedolaethau a threthi) on the official GOV.UK website.

Role of a Settlor in a Trust

In simple terms, the person with the responsibility of putting assets into a trust is called the ‘settlor’. Hence, they make decisions on how to use the assets (e.g. through a document called a ‘trust deed’).

It is not uncommon for the settlor to benefit from the assets held inside this kind of ‘legal relationship’. Thus, the ‘settlor-interested’ agreement is one of the different types of trust that has its own special tax rules.

Different Kinds of Trusts

There are many different types of trust in the United Kingdom, but they all offer a legal arrangement for managing people’s assets.

Note: Another section explains when you must register a trust with HMRC, the deadlines for registering, and how the process differs for trustees and agents.

What Does a Trustee Do?

Simply put, ‘trustees’ are the people (or organisation) that manage it. Because a trustee is the legal owner of the assets, their primary role will be:

  • Dealing with the assets in accordance with the expressed wishes of the settlor. As a rule, the information set out in a will or trust deed contains the settlor’s intentions.
  • Making decisions on how to invest or best use the assets held inside the fund.
  • Managing the ‘day-to-day’ operations of the trust and paying any taxes owed to HM Revenue and Customs (HMRC).

It is possible for trustees to change and hand over their responsibilities to a different managing agent(s). Even so, the trust will be able to continue as normal providing there is at least one (1) authorised trustee.

Who are the Beneficiaries of a Trust?

A simple definition of the ‘beneficiary’ is the person (or persons) who will benefit from the details set out in the legal agreement.

It is commonplace to have more than one named beneficiary, such as all the members in a family or a defined group of people, getting:

  • Only the income from a trust (e.g. a typical example would be rental payments from a property held in a trust).
  • The capital (e.g. a specific number of shares held in a trust once they reach maturity).
  • Both (e.g. the income generated by a trust as well as the capital (profits) realised from the assets that are held inside it).

Note: The main section contains more advice and information about Capital Gains Tax allowances and rates in Great Britain (England, Scotland, Wales) and Northern Ireland.

Trusts and Taxes

Capital Gains Tax

The information in this section explains how trusts and Capital Gains Tax (CGT) works and how to report a realised gain (profit) to HM Revenue and Customs (HMRC).

Income Tax

This section explains how trust income is taxed and who is responsible for paying Income Tax on taxable items to HM Revenue and Customs (HMRC).

Inheritance Tax

The UK rules for trusts and Inheritance Tax mean taxes can still be applied after the transfer of some of your estate (e.g. money, property) into a trust – even while you are alive.

Trust Beneficiaries: Paying Tax

The information in this help guide explains how beneficiaries pay and reclaim tax on trusts and when you need to register for Self Assessment.

Note: Another section explains the role of the trustee for reporting and paying tax to HMRC on behalf of the trust.

Trusts for Vulnerable People

HM Revenue and Customs (HMRC) will apply special tax rules to individuals who qualify for the so-called ‘trusts for vulnerable beneficiaries‘, such as bereaved minors or people with a disability.

HMRC Tax Help Guides

Note: Another section contains more information about Inheritance Tax rules, thresholds, and allowances and how to report it to HM Revenue and Customs (HMRC).

How Trusts are Taxed in the United Kingdom