If you’re a trustee of a UK trust, you carry a legal responsibility to ensure that trust income is reported correctly and the right amount of tax is paid to HMRC. Whether the trust was set up to fund grandchildren’s education, protect family wealth, or manage assets long-term, UK trust tax rules are complex — and mistakes can be costly.
This guide explains how UK trusts are taxed, what trustees must report, and how to stay compliant for the 2024/25 tax year. By the end, you’ll understand exactly what’s required — and when to seek professional help.
What Is a Trust in the UK?
A trust is a legal arrangement where:
- A settlor places assets into a trust
- Trustees manage those assets
- Beneficiaries benefit from the income or capital
Trusts can hold cash, property, shares, land, and investments, and are commonly used for:
- Family wealth planning
- Supporting minors or vulnerable beneficiaries
- Estate and inheritance tax planning
Each type of trust is taxed differently, so identifying the correct structure is critical.
Types of UK Trusts and How They’re Taxed
1. Bare Trusts
A bare trust gives the beneficiary an immediate and absolute right to both the income and capital.
Key tax points:
- Income is taxed directly on the beneficiary
- Capital gains are taxed on the beneficiary
- Trustees have minimal tax responsibilities
Example:
A grandparent sets up a bare trust for a grandchild’s education. Any interest or dividends are taxed as if the grandchild earned them personally.
2. Interest in Possession (IIP) Trusts
An Interest in Possession trust gives a beneficiary (the “life tenant”) the right to trust income, while capital passes to others later.
Key tax points:
- Income is taxed on the life tenant
- Trustees may pay tax initially, but liability rests with the beneficiary
- Capital gains are generally taxed at trust level
Example:
A parent receives rental income from a trust for life, with the property passing to children on death.
3. Discretionary Trusts
In a discretionary trust, trustees decide if, when, and how much beneficiaries receive.
Key tax points:
- Trust income taxed at higher rates
- Trustees are responsible for paying tax
- Beneficiaries receive tax credits on distributions
Example:
Trustees distribute funds based on children’s education or medical needs.
Trust Registration with HMRC (TRS)
Most UK express trusts must register with HMRC’s Trust Registration Service (TRS) — even if no tax is due.
Who Must Register?
- All UK express trusts (unless exempt)
- Trusts with or without taxable income
Key Deadlines
- New trusts (after 1 Sept 2022): Register within 90 days
- Changes to trustees or beneficiaries: Update TRS within 90 days
Trusts with taxable income must also obtain a Unique Taxpayer Reference (UTR).
How Much Tax Do UK Trusts Pay? (2024/25)
Income Tax Rates on Trust Income
Interest in Possession Trusts
- Other income: 20%
- Dividend income: 75%
Discretionary Trusts
- Other income: 45%
- Dividend income: 35%
Trustees cannot claim the dividend allowance.
The £500 Trust Income Allowance
Some trusts benefit from a £500 tax-free income allowance.
Important rules:
- If income exceeds £500, all income becomes taxable
- For multiple trusts created by the same settlor, the allowance is split
- Minimum allowance per trust: £100
- Bare trusts do not qualify
Capital Gains Tax on Trusts
Trusts pay Capital Gains Tax (CGT) when disposing of assets.
Annual Exempt Amount (2024/25)
- Standard trusts: £1,500
- Trusts with vulnerable beneficiaries: £3,000
CGT Rates
- Non-residential assets:
- 20% (until 29 Oct 2024)
- 24% (from 30 Oct 2024)
- Residential property:
- Flat rate 24%
Reporting Trust Income to HMRC (SA900)
Trustees must file a Trust and Estate Tax Return (SA900) if the trust has income or gains.
Filing Deadlines
- Paper return: 31 October following the tax year
- Online return: 31 January following the tax year
Missing deadlines can trigger penalties and interest.
Paying Trust Tax
Once the return is filed, HMRC confirms the tax due. Payment is usually due by 31 January, using:
- Bank transfer
- Direct Debit
- Cheque
Trustee Responsibilities to Beneficiaries
Trustees must issue form R185 (Trust) to beneficiaries receiving income.
This shows:
- Amount distributed
- Tax already paid
- Credits beneficiaries can claim on their own tax returns
This step is essential for beneficiary compliance.
Inheritance Tax (IHT) and Trusts
Trustees may also have Inheritance Tax responsibilities, including:
- Entry charges when assets are placed into trust
- 10-year anniversary (periodic) charges
- Exit charges when assets leave the trust
Discretionary trusts commonly require filing form IHT100 and supporting schedules.
Because IHT calculations are complex, professional advice is strongly recommended.
Key Takeaways for Trustees
- UK trust tax rules vary by trust type
- Most trusts must register with HMRC
- Trustees may face income tax, CGT, and IHT obligations
- SA900 filing and TRS updates are critical
- Errors can result in penalties and compliance risks
Need Help With Trust Tax Returns?
Trust taxation is one of the most complex areas of UK tax law. If you’re unsure about SA900 filing, trust income tax rates, or registration requirements, Taxd can help ensure everything is done accurately, efficiently, and compliantly.
FAQs
- What income is taxable in a UK trust?
Rental income, bank interest, dividends, and investment income are all taxable. - Do all trusts need to file a tax return?
Only trusts with income or gains must file SA900, but most trusts must still register with HMRC. - What happens if I don’t register a trust?
Penalties, compliance issues, and potential legal consequences may apply. - Do trusts pay inheritance tax?
Some trusts do — particularly discretionary trusts — through entry, exit, and ten-year charges.
