Trusts and estates tax advice for families, trustees and executors

The main types are bare trusts, interest in possession trusts and discretionary trusts. A bare trust belongs to the beneficiary for tax, so the assets count in their estate. An interest in possession trust gives someone the income. A discretionary trust lets trustees decide who benefits, and its assets are usually relevant property with entry, ten-yearly and exit inheritance tax charges. Income and gains rules also differ.

Putting assets into a discretionary trust is a chargeable transfer. Anything within your available nil-rate band, after counting gifts in the previous seven years, is charged at nil. Above it, tax is 20% if the trustees pay, with up to 40% in total if you die within seven years. Gifts to bare trusts are different, and are usually potentially exempt transfers.

Every ten years from the date a discretionary trust was set up, inheritance tax is charged on the value of its relevant property if that value exceeds the available nil-rate band. The charge is a maximum of 6% of the value above that band. Trustees must report it and pay within six months. Planning the trust's size and timing can reduce or avoid it.

An exit charge arises when property leaves a discretionary trust, for example when trustees pay capital to a beneficiary or when a beneficiary becomes entitled. The maximum is 6%. There is no exit charge on events in the first three months after the trust is set up or after a ten-year anniversary. The actual charge depends on how long the property has been in the trust.

Trustees must register most trusts with HMRC's Trust Registration Service, keep it updated, file trust tax returns where there is taxable income or gains, and report and pay inheritance tax charges within six months. They are personally responsible for getting this right. We help trustees understand the calendar, calculate the tax, and decide when to take advice before distributions.

Most express trusts, including discretionary trusts, must be registered on the Trust Registration Service. A taxable trust registers within 90 days of becoming liable to tax; a non-taxable trust within 90 days of creation. Some trusts are excluded, and changes must be updated. Failing to register can bring penalties, so ask us if you are unsure whether a trust you manage is in scope.

For 2026/27, a discretionary trust pays 39.35% on dividends and 45% on other income. From 6 April 2027, rent and savings income will be taxed at 47% in a trust. Trusts with net income of £500 or less pay no income tax on it. The old £1,000 standard rate band has gone. These rates make the type of asset in a trust important.

Trustees pay capital gains tax at 24% on most gains from 6 April 2026, with an annual exempt amount of £1,500 for most trusts, rising to £3,000 where a beneficiary is vulnerable. Gains qualifying for Business Asset Disposal Relief are taxed at 18%. Trusts that hold investments should plan disposals around the exempt amount and consider holdover relief when assets go in.

Often yes. A gift into a discretionary trust is a chargeable transfer for inheritance tax, so gains can usually be held over, deferring the capital gains tax until the trustees sell. Holdover is not available if the trust benefits the settlor, their spouse or, in some cases, their minor children. Getting the trust deed wording right is what protects the relief.

You can usually act as a trustee, but if you or your spouse can benefit from the trust, you may have made a gift with reservation of benefit, so the assets stay in your estate, and the trust's income may be taxed on you. Capital gains tax holdover is also lost. If you need access to the money, a different structure, or a loan, may serve you better.

The executor, or personal representative, collects the assets, reports the estate to HMRC, pays any inheritance tax, and then distributes what is left. Inheritance tax is due by the end of the sixth month after death, and interest runs on late payments. The estate also has its own income tax and capital gains tax position during administration, so planning the timing of sales matters.

Assets are treated as acquired by the personal representatives at their market value on death, so there is no capital gains tax on the gain that built up during the person's life. Executors then pay capital gains tax at 24% on later gains while administering the estate, with an annual exempt amount available for the year of death and the next two tax years.

Beneficiaries can sometimes rearrange who receives what by signing a deed of variation within two years of the death. If the instrument includes the right statement, the change is read back to the date of death for inheritance tax. Done well, it can reduce tax or redirect assets to a trust or a charity. It must be done for no payment, and every affected person must agree.

It depends on control, access, tax and cost. A trust has no shareholders and can protect assets for future generations, but gifts above the nil-rate band attract entry and periodic charges. A Family Investment Company is a company with shares, taxed at 25% on investment profits, and can be passed on as a gift. Many families use both. We compare them against your numbers.

Yes. We review existing trusts for tax efficiency, unclaimed reliefs, missed registrations or filings, and whether the trust still fits the family. We can advise trustees on distributions, ten-year anniversaries and winding up, and help if HMRC raises questions. Bring the trust deed, recent accounts and a list of assets, and we will tell you what needs attention.

Trustees owe duties to the beneficiaries, not to the settlor, so independent advice for trustees can be sensible, especially in family trusts where interests differ. We can advise a trust on its own tax position and work with the settlor's other advisers. Where there could be a conflict, we will say so before taking an instruction.