We know trustees often feel overwhelmed. A family arrangement set up to pay for grandchildren’s education can quickly create paperwork, reporting needs and worries about compliance.
In this guide we explain the essentials for the 2024/25 year and what to watch as we move through 2025. We set out the three main parts trustees face: the registration service, annual reporting and providing beneficiaries with the right paperwork.
Plain English matters. Different types of arrangement are taxed and reported in different ways depending on who benefits and who controls distributions. We also flag the common pinch-points: registration deadlines, 90‑day updates, higher rates on discretionary income and capital gains on asset disposals.
We focus on practical steps. Register if required, track income and assets, file the correct return, pay on time and issue R185 statements properly. Deliberate non‑compliance attracts penalties, but even honest mistakes can cause stress and extra costs.
Key Takeaways
- Register via the TRS when required and keep records up to date.
- Track income and gains carefully to avoid late surprises.
- File the correct annual return and supply beneficiaries with needed forms.
- Watch 90‑day update rules and registration deadlines closely.
- Penalties usually target deliberate non‑compliance, but errors still cost time and money.
Understanding UK trusts and who pays the tax
We start by setting out the people and assets that shape who is responsible for reporting and paying what.
Key roles: settlor, trustees and beneficiary
Settlor — the person who provides the initial assets. They set the arrangement and, in some cases, can still benefit.
Trustees — legal owners who manage the holdings, invest, keep records and usually handle returns and payment.
Beneficiary — the person who receives income, capital or both. Their right to money affects who bears the liability.
What counts as trust income and trust assets
Income typically includes rent, savings interest and dividends. The source matters when income reaches a beneficiary.
Assets cover cash, property, shares and land. Good records should show acquisition date and current worth.
When a trust is “settlor-interested”
If the settlor can benefit, special rules often apply and the settlor may be treated as liable for some amounts. In short, ask two questions: who controls the money and who can benefit.
- Who controls decisions often determines who reports and pays.
- Who can benefit often changes whether income is charged at trustee or beneficiary level.
- Common mistake: assuming no admin is needed because income is small.
For practical steps on setting up correctly, see our unlock the benefits guide.
Types of trust and how their tax treatment differs
Different arrangements carry different rules, so it helps to spot the exact type you are dealing with.
Bare trust — beneficiary as the owner
In a bare trust the beneficiary has immediate, absolute ownership. They are treated as the owner for income and gains.
That means the beneficiary will usually pay income on rent, dividends or interest and report gains if assets are sold. For example, a grandparent holding money for a grandchild is a typical bare trust example.
Interest in possession — the life tenant’s right
Interest possession trusts give a life tenant the right to receive income.
The life tenant will normally be liable for income on amounts they receive. Trustees can pay the sums on the tenant’s behalf, but the practical burden sits with the person entitled to receive income.
Discretionary arrangements and trustee control
A discretionary trust puts power with the trustees to decide who receives income or capital.
Because trustees control distributions, higher rates apply at the trust level. When beneficiaries do receive amounts, they may get a tax credit to avoid double charging.
| Type | Who usually pays | Key feature |
|---|---|---|
| Bare trust | Beneficiary | Immediate ownership — beneficiary pays income and gains |
| Interest in possession | Life tenant (practically) | Right to receive income — tenant liable for income |
| Discretionary trust | Trustees first; beneficiaries on distribution | Trustees control distributions — higher rates at trust level |
| Will and other types | Varies; may be excluded for two years after death | Will trusts can have a two-year express exclusion; vulnerable and non-resident arrangements need specialist review |
Practical tip: If a beneficiary is vulnerable or the trustees are overseas, seek specialist advice early. And for trusts created on death, check the two-year exclusion rules at types of trust.
HMRC trust tax guidance for registration on the Trust Registration Service
A clear split exists between arrangements that are taxable and those that are merely express for registration purposes. That single distinction shapes most registration duties and the level of detail trustees must provide.
Taxable arrangements have a UK liability. They must register as taxable trusts and give full beneficial ownership details plus additional data about trust assets at the point of registration.
Express arrangements are those deliberately created, often by deed. Express trusts with no UK liability still may need to register under anti‑money‑laundering rules unless an exclusion applies.
Common exclusions and when they end
- Will trusts: excluded for the first two years after death in many cases.
- Some life‑policy or statutory categories: limited, time‑bound exclusions.
- Where an exclusion ends, registration becomes necessary—often immediately.
What trustees must submit and what TRS does not replace
At registration trustees must provide beneficial ownership details: settlor, trustees, any beneficiaries and persons with control.
For arrangements that are classed as taxable, trustees also supply information about trust assets — values and types at registration.
Practical note: the TRS issues a Unique Taxpayer Reference for the arrangement. It does not replace the need to file a Trust and Estate tax return (SA900) or related forms. Trustees must still submit the separate tax return when required.
| Registration level | Main trigger | Required data |
|---|---|---|
| Taxable | UK tax liability arises | Beneficial ownership + trust assets details |
| Express (non‑taxable) | Deliberate creation (deed) without UK liability | Basic owner and settlor details; may be exempt under ML rules |
| Excluded | Specific categories (e.g. early will trusts) | No registration until exclusion ends |
TRS deadlines, annual updates and penalties trustees need to know
Timely updates keep arrangements compliant and families protected. A few simple dates in your diary cut risk and worry. We set out the core rules so you can act promptly.
90-day rule for new arrangements
Trusts created after 1 September 2022 generally must be registered within 90 days of creation. That clock starts on the date the arrangement first exists.
90 days for changes to people
Any meaningful change to trustees or a beneficiary triggers a 90-day update duty. Examples include appointing a new trustee or naming individuals instead of a class.
Annual confirmation and year-end rhythm
For taxable trusts, trustees must confirm TRS details each year by 31 January. Do this even if nothing changed. Link this task to the end tax year admin so it becomes routine.
When penalties apply
First slip-ups are often handled leniently, unless behaviour is deliberate. Deliberate failures—ignoring warnings or giving false beneficial details and not correcting them—can attract a £5,000 penalty per offence.
- Practical steps: keep a short change log, set calendar reminders and confirm the register annually.
- Small routines stop big problems later.
Income tax on trust income for the 2024/25 tax year and what to watch in 2025
Knowing the income rates for different arrangements helps trustees and beneficiaries plan ahead.
Interest in possession rates
Interest in possession arrangements pay 20% on most income for 2024/25. Dividend-type income in these cases is charged at 8.75%.
Why discretionary rates are higher
Discretionary arrangements face 45% on most income. Dividend-type amounts are taxed at 39.35%.
Why? Higher rates apply because the trustees control distributions and income sits at the arrangement level until paid out.
The £500 allowance and multiple arrangements
Some arrangements benefit from a £500 allowance. If total income for an arrangement goes over £500, the whole amount becomes taxable — not just the excess.
Where the same settlor created several arrangements, the allowance is shared with at least £100 each for discretionary cases.
Dividend limits and mandated income
Trustees cannot use the personal dividend allowance at the arrangement level. That affects portfolios held inside an arrangement.
In some possession situations, directing all income straight to the life tenant can reduce trustee reporting. Returns may still be needed if trustees pay basic‑rate liability after expenses.
Capital Gains Tax on trusts and distributions of trust assets
Capital gains can catch trustees by surprise when assets move or are sold. We explain the core rules simply so trustees can act with confidence.
Annual exempt amount: for the 2024/25 year the arrangement allowance is £1,500. A higher amount of £3,000 applies where a vulnerable beneficiary is involved.
Property rates and key thresholds
Residential property gains for arrangements are taxed at 24% in 2024/25. Non‑residential property was 20% until 29 October 2024 and rose to 24% from 30 October 2024.
When an appointment is a disposal
Appointing assets out of an arrangement to a beneficiary counts as a disposal for capital purposes. Trustees should treat that event like a sale. A notional gain can create a liability even if no cash changes hands.
Holdover relief and claiming HS295
Holdover relief can defer gains for certain gifts into or out of arrangements. Claims often use form HS295. In many cases the donor claims, and the relief must be documented correctly.
“Accurate valuations and dates make the difference when calculating gains.”
- Keep clear records of values and dates for every asset.
- Note when an appointment or transfer happens — that may be a taxable event.
- See a practical hold‑over relief example to check when HS295 applies.
Practical tip: run simple calculations early. If a likely gain exceeds the exempt amount, get professional help before appointing or selling property or shares.
How to report and pay trust tax to HMRC
Knowing when to file a return and when capital pages apply saves trustees time and expense.
Who must file: where required, trustees must complete a Trust and Estate Tax Return (SA900) each tax year. TRS registration does not substitute for this return.
Key filing deadlines
- Paper return: 31 October following the end tax year.
- Online return: 31 January following the end tax year.
When capital pages are needed
Complete SA905 if there is a disposal or deemed disposal of chargeable assets.
Typical triggers: proceeds over £50,000, gains above the annual exempt amount, or any claim or loss to report.
Paying tax and planning cashflow
We recommend calculating liabilities early so you can pay tax on time. File online by 31 January and pay any balance due the same day to avoid interest.
Plan around the end tax year: gather records before year end to reduce surprises.
Issuing form R185 and tax credits
After payments and distributions, trustees should issue form 185 to beneficiaries. That form shows income, tax deducted and any credit due.
Beneficiaries use the form on their own return and can claim credit for tax already paid by the arrangement.
| Step | What to do | Timing |
|---|---|---|
| Gather records | Income, disposals, valuations | Before end tax year |
| File SA900 (+SA905 if needed) | Declare income and capital events | Paper 31 Oct / Online 31 Jan |
| Pay liability | Balance due paid to avoid interest | By 31 Jan following tax year |
| Issue form 185 | Provide beneficiaries with income and credit details | After payments/distributions |
Conclusion
To close, we offer a short checklist to keep families compliant and calm.
Identify the trust type and who benefits. Register where needed and update beneficial details within 90 days of any change. Confirm taxable arrangements by 31 January and file SA900 where applicable.
Keep simple records of income and of any appointments that may trigger capital gains. Note who usually pays: a beneficiary in a bare trust, a life tenant in an interest in possession, and trustees for discretionary arrangements.
Watch the 2025 points closely: TRS duties and CGT on appointments, and possible Irish CRBOT registration for UK arrangements holding Irish bonds.
If you need an example of how new rules affect families, see how the new inheritance rules affect your.
When multiple arrangements, property sales or vulnerable persons are involved, get professional help early.