Trustees often feel overwhelmed — and understandably so. A family trust set up to protect the home or provide for grandchildren can quickly generate paperwork, reporting obligations and worries about getting something wrong with HMRC.
In this guide we explain the essentials for the 2024/25 tax year and what to watch as we move through 2025. We cover the three main areas trustees face: the Trust Registration Service (TRS), annual tax reporting, and providing beneficiaries with the right paperwork.
Plain English matters. Different types of trust are taxed and reported in different ways depending on who benefits and who controls distributions. We also flag the common pinch-points: the 90‑day registration deadline, keeping TRS details up to date, the higher income tax rates that apply to discretionary trusts, and capital gains tax on asset disposals or appointments out to beneficiaries.
We focus on practical steps. Register on the TRS if required, track income and assets throughout the year, file the correct return (SA900), pay on time and issue R185 statements properly. Deliberate non‑compliance attracts penalties, but even honest mistakes can cause stress and unnecessary costs — so getting the basics right from the start is well worth the effort.
Key Takeaways
- All UK express trusts must register on the TRS within 90 days of creation — and keep records up to date.
- Track income and gains carefully throughout the tax year to avoid late surprises at filing time.
- File the SA900 Trust and Estate Tax Return where required, and supply beneficiaries with R185 forms after distributions.
- Watch the 90‑day update rules closely — any change to trustees, beneficiaries or other registered details triggers a fresh deadline.
- Penalties usually target deliberate non‑compliance, but even innocent errors cost time and money to correct.
Understanding UK trusts and who pays the tax
Before looking at specific tax obligations, it helps to understand the people involved in a trust and how that arrangement shapes who is responsible for reporting and paying what. A trust is not a separate legal entity in English law — it is a legal arrangement where the trustees hold legal ownership of assets for the benefit of others. England invented trust law over 800 years ago, and the distinction between legal and beneficial ownership remains the foundation of how trusts work today.
Key roles: settlor, trustees and beneficiary
Settlor — the person who creates the trust and provides the initial assets. They set the terms in the trust deed and, in some cases, may still be able to benefit (which triggers special tax rules — see below). The settlor can also serve as one of the trustees, which allows them to retain a degree of involvement in day-to-day management.
Trustees — the legal owners who manage the trust property, make investment decisions, keep records and are usually responsible for filing returns and paying any tax due. A minimum of two trustees is required, and Land Registry allows up to four trustees to be registered on a property title.
Beneficiary — the person (or class of persons) who may receive income, capital or both from the trust. The nature of their entitlement — whether they have an absolute right or merely a hope that the trustees will exercise discretion in their favour — determines who bears the tax liability.
What counts as trust income and trust assets
Income typically includes rent from trust-held property, savings interest from bank accounts and dividends from shares or funds. The source and type of income matters because it determines the rate at which it is taxed — and who is ultimately liable for it.
Trust assets (the capital) cover cash, residential or commercial property, shares, investments and land. Good record-keeping should show the acquisition date, base cost, and current market value for every asset — this is essential when calculating capital gains on any future disposal or appointment out to a beneficiary.
When a trust is “settlor-interested”
If the settlor or their spouse or civil partner can benefit from the trust in any way, the trust is classed as “settlor-interested.” This has significant tax consequences: income arising in the trust may be treated as the settlor’s own income for tax purposes, and certain reliefs — such as holdover relief on transfers into the trust — become unavailable. Trust assets in a settlor-interested trust also remain within the settlor’s estate for inheritance tax (IHT) purposes. In short, ask two questions: who controls the assets and who can benefit.
- Who controls decisions often determines who files the returns and pays the tax.
- Who can benefit often changes whether income is charged at the trust rate or attributed back to the settlor or beneficiary personally.
- Common mistake: assuming no administration is needed because the trust income is small. Even trusts with minimal income may need to register on the TRS and confirm their details annually.
This is one of the key reasons why keeping the settlor excluded from benefit is so important in asset protection and IHT planning. A trust where the settlor cannot benefit — such as a properly structured irrevocable lifetime trust — avoids the settlor-interested trap entirely. For practical steps on setting up a trust correctly from the outset, see our unlock the benefits guide.
Types of trust and how their tax treatment differs
Different types of trust carry different tax rules, so identifying the exact type you are dealing with is the essential first step. In English law, the primary classification is whether the trust is a lifetime trust (created during the settlor’s life) or a will trust (created on death). The secondary classification — bare, interest in possession, or discretionary — determines how income and gains are taxed day to day.
Bare trust — beneficiary treated as the owner
In a bare trust the beneficiary has an immediate, absolute right to both income and capital. Under the principle in Saunders v Vautier, the beneficiary can collapse the trust entirely once they reach age 18 (16 in Scotland). The trustee is simply a nominee — they hold legal title but have no real discretion.
Because the beneficiary is treated as the owner, they pay income tax on rent, dividends or interest at their own personal rates and report any capital gains if trust assets are sold. For example, a grandparent holding money in their name for a grandchild is a typical bare trust scenario. It is worth noting that bare trusts offer no IHT advantages and no protection against care fees, divorce or bankruptcy — the assets belong to the beneficiary in all but name. Since the beneficiary can demand the assets at any time once they reach 18, a bare trust is fundamentally unsuitable for families who want genuine asset protection.
Interest in possession — the life tenant’s right to income
An interest in possession trust gives one person — the life tenant (or income beneficiary) — the right to receive income from the trust assets, or the right to occupy trust property. A separate beneficiary (the remainderman) receives the capital when the life tenant’s interest ends, typically on their death.
The life tenant is normally liable for income tax on the amounts they receive, at their own personal rates. Trustees may deduct basic-rate tax before paying the income across, but the practical tax burden sits with the life tenant. This type of trust is commonly used in wills to provide for a surviving spouse while ultimately passing assets to children — helping to prevent sideways disinheritance. It is worth noting that the IHT treatment of interest in possession trusts depends on when they were created: post-March 2006 IIP trusts are generally treated under the relevant property regime (like discretionary trusts) unless they qualify as an immediately post-death interest (IPDI) or a disabled person’s interest.
Discretionary trusts and trustee control
A discretionary trust puts full power with the trustees to decide who among a class of beneficiaries receives income or capital, and how much. No beneficiary has any automatic right to anything — this is the key feature that provides protection against care fees, divorce and bankruptcy. Discretionary trusts are by far the most common type used for asset protection in England and Wales, making up the vast majority of family trusts. They can last for up to 125 years under current legislation.
Because trustees control distributions, HMRC applies higher tax rates at the trust level. When beneficiaries do receive distributions, they may be entitled to a tax credit for the tax already paid by the trustees — helping to avoid double taxation. For IHT purposes, discretionary trusts fall under the relevant property regime, which carries a potential periodic charge every ten years (maximum 6% of trust value above the nil rate band) and a proportional exit charge when assets are appointed out. For most family trusts holding a single property below the nil rate band of £325,000, these charges are often zero.
| Type | Who usually pays | Key feature |
|---|---|---|
| Bare trust | Beneficiary | Immediate absolute entitlement — beneficiary pays income tax and CGT at personal rates |
| Interest in possession | Life tenant (at their personal rates) | Right to receive income — life tenant liable for income tax on distributions received |
| Discretionary trust | Trustees first; beneficiaries on distribution | Trustees control all distributions — higher rates (45% / 39.35%) at trust level |
| Will trusts and other types | Varies; administration period rules may apply for two years after death | Will trusts may be excluded from TRS registration for two years; vulnerable person trusts and non-resident trusts need specialist review |
Practical tip: If a beneficiary is a vulnerable person (disabled or a minor) or the trustees are non-UK resident, seek specialist advice early — the tax rules differ significantly. For trusts created on death, check the administration period and exclusion rules at HMRC’s types of trust guidance.
HMRC trust tax guidance for registration on the Trust Registration Service
A clear split exists between trusts that have a UK tax liability and those that are simply “express” trusts required to register under anti-money laundering rules. That single distinction shapes most registration duties and the level of detail trustees must provide to HMRC.
Taxable trusts are those with a UK tax liability — for income tax, capital gains tax, inheritance tax, stamp duty land tax, or similar. They must register as taxable trusts and provide full beneficial ownership details plus information about trust assets at the point of registration.
Non-taxable express trusts are those deliberately created — typically by a trust deed — but with no current UK tax liability. Under the 5th Money Laundering Directive, these trusts still need to register on the TRS unless a specific exclusion applies. This requirement caught many families by surprise when it was introduced, as it means even a simple family trust holding a property with no income must register. The good news is that the TRS register is not publicly accessible (unlike Companies House), so the details you provide are not visible to the general public.
Common exclusions and when they end
- Will trusts: excluded from registration for the first two years after the date of death in many cases.
- Certain life insurance policy trusts, pension trusts and statutory trusts: limited, time-bound exclusions apply.
- Where an exclusion ends — for example, a will trust that continues beyond two years — registration becomes necessary promptly.
What trustees must submit and what TRS does not replace
At registration, trustees must provide full beneficial ownership details: the settlor, all trustees, any named beneficiaries (or a description of the class of beneficiaries), and any person with significant control over the trust.
For trusts classed as taxable, trustees must also supply information about trust assets — types and values at the point of registration.
Practical note: the TRS issues a Unique Taxpayer Reference (UTR) for the trust. This does not replace the need to file a Trust and Estate Tax Return (SA900) or related supplementary pages. The TRS is a registration and anti-money laundering tool; the SA900 is the separate annual tax return that trustees must file when the trust has taxable income or gains. Both obligations run in parallel.
| Registration level | Main trigger | Required data |
|---|---|---|
| Taxable trust | UK tax liability arises (income tax, CGT, IHT, SDLT, etc.) | Full beneficial ownership details + trust asset information |
| Non-taxable express trust | Deliberately created (by trust deed) with no current UK tax liability | Settlor, trustee and beneficiary details; may be exempt under specific exclusion categories |
| Excluded trust | Specific categories (e.g. will trusts within two years of death, certain pension and insurance trusts) | No registration required until the exclusion ends |
TRS deadlines, annual updates and penalties trustees need to know
Timely updates keep trusts compliant and families protected. A few key dates in your diary can cut risk and worry significantly. Here are the core rules so you can act promptly.
90-day rule for new trusts
All UK express trusts created after 1 September 2022 must be registered on the TRS within 90 days of creation. That clock starts on the date the trust deed is executed and the trust first comes into existence. Missing this deadline without a reasonable excuse can trigger penalties.
90 days for changes to registered details
Any material change to the information held on the TRS triggers a fresh 90-day update duty. Common examples include appointing a new trustee, removing a trustee, the death of the settlor, a change in beneficiaries (such as naming specific individuals where previously only a class was described), or a change in the trust’s tax liability status.
Annual confirmation and year-end rhythm
For taxable trusts, trustees must confirm that their TRS details are up to date by 31 January each year — even if nothing has changed. The simplest approach is to link this task to your end-of-tax-year administration so it becomes routine alongside filing the SA900 return.
When penalties apply
First-time errors are often handled proportionately by HMRC, provided the behaviour was not deliberate. However, deliberate failures — such as ignoring registration obligations, providing false beneficial ownership details, or failing to correct known errors — can attract penalties of up to £5,000 per offence.
- Practical steps: keep a simple change log for the trust, set calendar reminders for the 90-day and 31 January deadlines, and confirm the TRS register annually even when nothing has changed.
- Small routines stop big problems later — and demonstrate good faith to HMRC if a genuine error does occur.
Income tax on trust income for the 2024/25 tax year and what to watch in 2025
Knowing the income tax rates for different trust types helps trustees and beneficiaries plan distributions and manage cashflow effectively. It is also worth remembering that many family trusts — particularly those holding only the family home with no rental income — may have no income at all, in which case income tax obligations will not arise.
Interest in possession trust rates
Interest in possession trusts pay income tax at the basic rate on income before it passes to the life tenant: 20% on non-dividend income and 8.75% on dividend income for 2024/25. However, because the life tenant is treated as entitled to the income, they will include it on their personal tax return and pay any higher or additional rate tax due at their marginal rate. The basic-rate tax already paid by the trustees is credited against their liability.
Why discretionary trust rates are higher
Discretionary trusts face the trust rate of 45% on non-dividend income and 39.35% on dividend income for 2024/25. These are the highest rates in the income tax system.
Why so high? Because no beneficiary has an automatic right to the income, it accumulates at the trust level. HMRC charges the highest rate to prevent income being sheltered indefinitely within a discretionary trust. When trustees later distribute income to beneficiaries, the beneficiary receives a tax credit for the 45% already paid — and if their personal rate is lower, they can reclaim the difference from HMRC. In practice, this means a basic-rate taxpayer beneficiary receiving a distribution would get a significant refund.
The £1,000 standard rate band and multiple trusts
Trusts with income benefit from a £1,000 standard rate band — the first £1,000 of trust income is taxed at the basic rate (20% or 8.75% for dividends) rather than the trust rate. This can make a meaningful difference for trusts with modest income.
However, where the same settlor has created more than one trust, this £1,000 band is divided equally between them, with a minimum of £200 per trust. So if one settlor created five trusts, each gets only a £200 standard rate band.
Dividend allowances and mandated income
Trustees cannot claim the personal dividend allowance at the trust level — that allowance is only available to individual taxpayers. This affects trusts holding share portfolios or investment funds that produce dividend income.
In some interest in possession trusts, where all income is mandated directly to the life tenant (i.e., paid straight to them without the trustees receiving it first), this can simplify the trustees’ reporting obligations. The life tenant reports the income on their personal return. However, trustees may still need to file an SA900 if there are allowable expenses to set against income or if basic-rate tax needs accounting for.
Capital Gains Tax on trusts and distributions of trust assets
Capital gains can catch trustees by surprise when assets are sold, transferred out to beneficiaries, or otherwise disposed of. Here are the core CGT rules for trusts so you can plan ahead with confidence.
Annual exempt amount: for the 2024/25 tax year, the trust CGT annual exempt amount is £1,500 (half the individual allowance of £3,000). Where a trust is for the benefit of a vulnerable person — specifically a disabled person or a relevant minor — the full individual allowance of £3,000 may be available. Like the income tax standard rate band, this annual exempt amount is shared where the same settlor has created multiple trusts.
CGT rates and key thresholds for trusts
For 2024/25, residential property gains within a trust are taxed at 24%. Following the Autumn Budget 2024 changes, gains on non-residential assets (shares, commercial property, etc.) are also charged at 24% from 30 October 2024 onwards — up from the previous rate of 20% that applied earlier in the tax year. This alignment of rates simplifies the position but increases the CGT bill on non-property disposals.
It is worth noting that when the family home is first transferred into a trust, principal private residence relief normally applies at the point of transfer — meaning no CGT is triggered at that stage. The potential CGT charge arises later, if and when the property is sold or appointed out of the trust at a higher value than the base cost.
When an appointment out is a disposal
Appointing assets out of a trust to a beneficiary is treated as a deemed disposal at market value for CGT purposes — even though no cash changes hands. The trustees are treated as having “sold” the asset at its current value and “bought” it back at that same value. If the market value exceeds the acquisition cost (or base cost), a chargeable gain arises and CGT may be due. This catches many trustees off guard, so always obtain a professional valuation before making an appointment of trust property.
Holdover relief — deferring the gain
Holdover relief can defer the gain arising on certain transfers of assets into or out of trusts. Where the relief applies, the gain is effectively “held over” — the beneficiary receiving the asset takes it at the trustees’ base cost rather than market value, so they inherit the potential gain. This is an extremely valuable relief for discretionary trusts. Both the trustees and the beneficiary must jointly elect for holdover relief, and the claim is made using HMRC’s helpsheet HS295.
Important limitation: holdover relief is not available for settlor-interested trusts. If the settlor or their spouse can benefit, the relief cannot be claimed — which is one reason why keeping the settlor excluded from benefit is critical in trust planning.
- Keep clear records of acquisition dates, base costs and current market values for every trust asset.
- Note when an appointment or transfer happens — that is likely a taxable event requiring a valuation.
- See a practical hold‑over relief example to check when holdover relief applies and how the HS295 claim works.
Practical tip: run the CGT calculations early. If a likely gain exceeds the £1,500 annual exempt amount, get professional advice before appointing property, shares or other assets out of the trust. A small amount of planning can save thousands in tax.
How to report and pay trust tax to HMRC
Understanding when to file a return and which supplementary pages are needed saves trustees time, expense and the risk of penalties.
Who must file: where a trust has taxable income or chargeable gains in a tax year, the trustees must complete a Trust and Estate Tax Return (SA900). Remember, TRS registration does not substitute for this annual return — they are two separate obligations.
Key filing deadlines
- Paper return: 31 October following the end of the tax year (e.g., 31 October 2025 for the 2024/25 tax year).
- Online return: 31 January following the end of the tax year (e.g., 31 January 2026 for the 2024/25 tax year).
When capital gains pages are needed
Trustees must complete the SA905 supplementary pages if there has been any disposal or deemed disposal of chargeable assets during the tax year.
Typical triggers include: total disposal proceeds exceeding £50,000 in the year, gains exceeding the £1,500 annual exempt amount, any claim for holdover relief or other CGT reliefs, or any capital loss to report and carry forward.
Paying tax and planning cashflow
We recommend calculating the trust’s tax liability well before the deadline so you can pay on time. File online by 31 January and pay any balance due on the same day to avoid interest charges and late payment penalties. For trusts with significant income, payments on account may also be required — typically two interim payments (31 January and 31 July) based on the previous year’s liability.
Plan around the end of the tax year: gather all records — rental income statements, dividend vouchers, bank interest certificates, disposal details — before 5 April to reduce the last-minute scramble.
Issuing form R185 and tax credits for beneficiaries
After making income distributions to beneficiaries, trustees should issue form R185. This form shows the amount of income distributed, the type of income (e.g., rental, dividend, interest), and the tax credit available — i.e., the amount of tax the trustees have already paid on that income at the trust rate.
Beneficiaries use the R185 to complete their own self-assessment return. If the beneficiary’s personal tax rate is lower than the trust rate (for example, they are a basic-rate taxpayer), they can claim a refund of the difference from HMRC. If they are a higher or additional rate taxpayer, the tax credit may cover most or all of their personal liability on that income.
| Step | What to do | Timing |
|---|---|---|
| Gather records | Income statements, disposal details, valuations, expense receipts | Before the end of the tax year (5 April) |
| File SA900 (+SA905 if needed) | Declare all trust income and capital gains events | Paper: 31 October / Online: 31 January |
| Pay liability | Pay any balance due to HMRC to avoid interest and penalties | By 31 January following the tax year |
| Issue form R185 | Provide each beneficiary with income, tax credit and distribution details | After making income distributions |
Conclusion
To close, here is a short checklist to keep trustees compliant and families protected.
Identify the trust type — bare, interest in possession, or discretionary — because this determines who pays the tax and at what rate. Register on the TRS where required and update beneficial ownership details within 90 days of any change. Confirm taxable trust details on the TRS by 31 January each year, and file the SA900 return where the trust has taxable income or gains.
Keep simple but thorough records of all income received and any appointments or transfers that may trigger a capital gains charge. Remember who usually pays: the beneficiary in a bare trust, the life tenant in an interest in possession trust, and the trustees (at the trust rate) for discretionary trusts.
Watch the key developments for 2025 and beyond closely: ongoing TRS compliance duties, CGT on appointments out of trusts at the aligned rate of 24%, and the upcoming changes from April 2027 when inherited pensions become liable for IHT — which may affect how families structure their estate planning alongside trusts. From April 2026, business property relief and agricultural property relief will also be capped at 100% for the first £1 million of combined business and agricultural property, with 50% relief on the excess — another reason to review your overall plan regularly.
For a practical look at how recent legislative changes affect families, see how the new inheritance tax rules affect your family’s future.
When multiple trusts, property disposals, vulnerable beneficiaries or non-UK resident trustees are involved, get specialist professional help early. The law — like medicine — is broad. You wouldn’t want your GP doing surgery.