Trusts and taxes

A trust is a way of managing assets (money, investments, land or buildings) for people. There are different types of trusts and they are taxed differently.

Trusts involve:

• the ‘settlor’ – the person who puts assets into a trust
• the ‘trustee’ – the person who manages the trust
• the ‘beneficiary’ – the person who benefits from the trust

What trusts are for

Trusts are set up for a number of reasons, including:

• to control and protect family assets
• when someone’s too young to handle their affairs
• when someone cannot handle their affairs because they’re incapacitated
• to pass on assets while you’re still alive
• to pass on assets when you die (a ‘will trust’)
• under the rules of inheritance if someone dies without a will (in England and Wales)

What the settlor does

The settlor decides how the assets in a trust should be used – this is usually set out in a document called the ‘trust deed’.

Sometimes the settlor can also benefit from the assets in a trust – this is called a ‘settlor-interested’ trust and has special tax rules. Find out more by reading the information on different types of trust.

What trustees do

The trustees are the legal owners of the assets held in a trust. Their role is to:

• deal with the assets according to the settlor’s wishes, as set out in the trust deed or their will
• manage the trust on a day-to-day basis and pay any tax due
• decide how to invest or use the trust’s assets

If the trustees change, the trust can still continue, but there always has to be at least one trustee.

Beneficiaries

There might be more than one beneficiary, like a whole family or defined group of people. They may benefit from:

• the income of a trust only, for example from renting out a house held in a trust
• the capital only, for example getting shares held in a trust when they reach a certain age
• both the income and capital of the trust

Types of trust

If you need help

Contact a solicitor or tax advisor. They can also talk to HM Revenue and Customs (HMRC) on your behalf if you give them permission.