UK Trust Taxation Deep-Dive 2026/27
How UK trusts are taxed in 2026/27: bare, interest in possession and discretionary trusts, 45% and 39.35% trust rates, CGT, IHT charges and the TRS.
UK trust types compared
Summary of GOV.UK "Trusts and taxes" for 2026/27. Non-UK resident trusts follow different rules.
| Type | Description | Income Tax | CGT | IHT |
|---|---|---|---|---|
| Bare trust | Beneficiary is absolutely entitled to the assets and income; trustees hold legal title only. | Taxed on the beneficiary, who can use their Personal Allowance (the trust £500 tax-free amount does not apply) | Gains taxed on the beneficiary | Transfer in can be exempt if the giver survives 7 years |
| Interest in possession | A beneficiary is entitled to the income as it arises; others may take the capital later. | Trustees pay 20% (other income) and 10.75% (dividends); the beneficiary is taxed on what they are entitled to | Trustees pay 24% | Assets put in on or after 22 March 2006: 10-yearly charge may apply; earlier: no IHT on transfer in |
| Discretionary or accumulation | Trustees decide who receives income and capital, and may accumulate income. | 45% on other income, 39.35% on dividends, above the tax-free amount | Trustees pay 24% above the £1,500 exempt amount | Relevant property: charges on entry, at each 10-year anniversary and on exit |
| Trust for a vulnerable beneficiary | A disabled person, or a child under 18 whose parent has died; trustees must make a Vulnerable Person Election. | Trustees can reduce the tax to what the beneficiary would have paid | £3,000 exempt amount for a trust for a disabled person, £1,500 for a bereaved-minor trust (TCGA 1992 Sch 1C paras 2 and 5); on an election, tax can be reduced to the beneficiary's position (FA 2005 s.31) | No 10-yearly charges |
| Settlor-interested trust | The settlor or their spouse or civil partner can benefit. | Income is taxed as the settlor's, though trustees pay the tax as it arises | Trustees pay on disposals | Depends on the trust type |
Related guides and calculators
Frequently asked questions
What is a trust and why are they used?
A trust is an arrangement where a settlor gives assets to trustees to hold for beneficiaries. Common uses are controlling when and how family members receive money, protecting a young or vulnerable beneficiary, providing for a surviving spouse while preserving capital for children, and passing on a business. The tax treatment depends on the type of trust, so the type matters more than the label. Take advice from a solicitor and tax adviser before setting one up.
How is income taxed in a discretionary trust?
Trustees pay 45% on most income and 39.35% on dividend-type income, with no dividend allowance. Most trusts pay no Income Tax if income is within a tax-free amount, normally £500; above it, tax is due on the whole amount. Where the settlor has made other qualifying settlements (broadly trusts with income at the trust rates that are not settlor-interested, vulnerable-beneficiary, heritage or pension trusts), and this trust itself has income at the trust rates and meets the same conditions, the amount is £500 divided by the number of those other trusts plus this one, with a minimum of £100, so £100 each where there are 5 or more in total (ITA 2007 s.24B(4)-(9); GOV.UK "Trusts and taxes"). This replaced the £1,000 standard rate band, which applied up to 2023/24 and was divided by the number of settlements the settlor had made, with a minimum of £200 (HMRC TSEM3012). Income used for qualifying trust management expenses is taxed at 20% (10.75% for dividends).
Can a beneficiary reclaim tax paid by a discretionary trust?
Payments from a discretionary trust are treated as made after tax at 45% (ITA 2007 s.494). A beneficiary who receives £55 is treated as having income of £100 with £45 tax already paid. A basic-rate taxpayer owes £20 on it and can reclaim the rest; an additional-rate taxpayer has nothing more to pay. This credit cannot be reclaimed on payments to the settlor's spouse or civil partner from a settlor-interested discretionary trust (GOV.UK).
How is CGT calculated for trustees?
Trustees have paid CGT at 24% on all gains, including residential property, since 30 October 2024, and that rate continues for 2026/27 (GOV.UK CGT rates and allowances). The trust annual exempt amount for 2026/27 is £1,500, or £3,000 for a settlement for a disabled person (TCGA 1992 Sch 1C para 2; a trust for a bereaved minor gets the ordinary £1,500), and it is reduced if the settlor has made more than one qualifying UK settlement since 6 June 1978 (10 March 1981 for disabled-person trusts): it is then split equally between them, with a floor of £300 (Sch 1C paras 6 and 7). Example: a £15,000 gain less £1,500 leaves £13,500 taxable, so £3,240 of CGT. UK residential property gains must be reported and paid within 60 days.
Is taking assets out of a trust a CGT disposal?
Usually yes. When a beneficiary becomes absolutely entitled to trust property, the trustees are treated as selling it at market value (TCGA 1992 s.71), so a gain can arise even though nothing is sold. Where the transfer in or out is also a chargeable transfer for Inheritance Tax, as with most transfers into and out of discretionary trusts, gift hold-over relief under TCGA 1992 s.260 can postpone the gain so the recipient takes over the original cost. No CGT arises where an interest in possession ends on the beneficiary's death (GOV.UK).
What are the IHT charges on discretionary trusts?
Most trusts are "relevant property". Transfers in during the settlor's lifetime are chargeable at 20% on value above the available nil-rate band (£325,000), with a further charge if the settlor dies within 7 years. At each 10-year anniversary the charge is three-tenths of an "effective rate" worked out under IHTA 1984 s.66, so at most 6% of the value; exit charges between anniversaries are a proportion of that rate. Additions to several trusts on the same day are aggregated (IHTA 1984 s.62A). Trusts for vulnerable beneficiaries have no 10-yearly charges.
How do business and agricultural property relief work in trusts?
From 6 April 2026, 100% relief on qualifying business and agricultural property is limited to an allowance of £2,500,000, with 50% relief on value above it. For trusts, the allowance is shared across all settlements made by the same settlor, so splitting property across several trusts does not multiply it; trusts set up before 30 October 2024 have their own rules (GOV.UK APR and BPR changes).
How are bare trusts taxed?
The beneficiary is taxed as if they owned the assets: income goes on their own tax return and they can use their Personal Allowance, and gains are theirs. A gift into a bare trust is treated like a gift to the beneficiary for Inheritance Tax and can be exempt if the giver survives 7 years. But if a parent puts money into a bare trust for their own minor child, income over £100 a year is taxed as the parent's (ITTOIA 2005 s.629). Gifts from grandparents are not caught by that rule.
What makes a trust settlor-interested?
Under ITTOIA 2005 ss.624-625 a settlor is treated as having an interest if the trust property or income is, or may become, payable to or applicable for the benefit of the settlor or their spouse or civil partner. Separated spouses, widows and future spouses are excluded; unmarried partners are not within the definition. The settlor is then taxed on the income even if they receive none of it, and can recover that tax from the trustees (s.646). Payments to the settlor's own minor children are covered by a separate rule (s.629).
Does my trust need to be on the Trust Registration Service?
All UK express trusts must register unless excluded under Schedule 3A of the Money Laundering Regulations 2017, and any trust with a UK tax liability must register. Exclusions include pension scheme trusts, registered charities, many life policy trusts and will trusts wound up within 2 years of death. A non-taxable trust created after 6 October 2020 must register within 90 days of creation; a taxable trust registers by 5 October or 31 January after the tax year it became liable, depending on the tax. HMRC can charge a fixed £5,000 penalty if a trust is not registered or updated within the time limit it sets after finding the failure (GOV.UK).