Many people wonder whether a trust can be used to manage a business in the UK. The answer depends on the circumstances. A trust is a legal arrangement — not a separate legal entity — where trustees hold and manage assets for the benefit of beneficiaries. The trustees are the legal owners of the assets, but they must manage them according to the terms of the trust deed.
Trusts have been part of English law for over 800 years and are widely used for estate planning, asset protection, and inheritance tax (IHT) planning. But their role in business is more intricate. If you’re thinking about using a trust to hold company shares, business property, or other commercial assets, it’s crucial to understand how trusts interact with company law, tax law, and the practical realities of running a business.
You can learn more about putting your business in a trust. This can help you decide if it’s the best choice for your situation.
Key Takeaways
- Trusts can hold business assets such as company shares, providing asset protection and tax-efficient planning opportunities.
- The process involves choosing the right type of trust — typically a discretionary trust — and correctly transferring business assets into it via a properly drafted trust deed.
- The primary classification of trusts in the UK is lifetime trust vs will trust, with discretionary, bare, and interest in possession being the main operational types.
- Clear rules for management and succession can be established through the trust deed and a letter of wishes to guide the trustees.
- Business owners should seek specialist legal advice before transferring their business into a trust, as the tax implications — including income tax, capital gains tax (CGT), and IHT — are significant and must be carefully planned.
Understanding Trusts and Their Types
In the UK, trusts play an important role in business planning. They offer flexibility and protection for business owners, their families, and their successors. Understanding the basics of how trusts work — and which type is right for your situation — is essential.
What is a Trust?
A trust is a legal arrangement where a settlor transfers assets to trustees, who then hold and manage those assets for the benefit of named beneficiaries. This is not the same as creating a company — a trust has no separate legal personality. The trustees are the legal owners of the trust assets, but they are bound by fiduciary duties to manage them in accordance with the trust deed and for the beneficiaries’ benefit. England invented trust law over 800 years ago, and it remains one of the most flexible and powerful planning tools available under English and Welsh law.
Types of Trusts: Overview
In the UK, trusts are primarily classified as either lifetime trusts (created during the settlor’s lifetime) or will trusts (created upon death through a will). Within these, the main operational types are discretionary trusts, bare trusts, and interest in possession trusts. Each has distinct legal and tax characteristics. The right trust depends on the business owner’s goals — whether that’s protecting shares from divorce, planning for IHT, or ensuring smooth succession.
Discretionary vs. Fixed Trusts
Discretionary trusts give trustees absolute discretion over how and when to distribute income and capital among a class of beneficiaries. No beneficiary has a fixed right to anything — this is the key protection mechanism, because assets held in a discretionary trust generally cannot be claimed by a beneficiary’s creditors, ex-spouse, or the local authority for care fees. Discretionary trusts can last up to 125 years and account for the vast majority of trusts used in estate and business planning.
Fixed trusts (also called bare trusts or interest in possession trusts) specify exactly what each beneficiary receives. With a bare trust, the beneficiary has an absolute right to the capital and income once they reach 18, and can collapse the trust entirely under the principle in Saunders v Vautier. Interest in possession trusts give a life tenant the right to income, with capital passing to a remainderman when the life interest ends. Fixed trusts offer certainty but far less protection and flexibility than discretionary trusts — and bare trusts in particular offer no meaningful asset protection or IHT planning benefits.
When setting up a trust, think about the legal aspects and how you will fund it. For more on this topic, check our guide on how to fund a trust.
| Trust Type | Discretionary Trust | Fixed Trust |
|---|---|---|
| Distribution of Assets | Trustees have absolute discretion to distribute income and capital among a class of beneficiaries. No beneficiary has a fixed entitlement. | Beneficiaries’ interests are specified in the trust deed, with fixed entitlements to income and/or capital. |
| Flexibility | High flexibility — trustees can respond to changing family circumstances, tax rules, and business needs over up to 125 years. | Limited flexibility — distributions are predetermined and cannot easily be adjusted to changing circumstances. |
| Beneficiary Benefits | Beneficiaries may receive distributions based entirely on the trustees’ decisions, guided by a letter of wishes from the settlor. | Beneficiaries receive specified benefits as defined in the trust deed. With bare trusts, they can demand all assets at age 18. |
Legal Framework for Trusts in the UK
Understanding the legal framework for trusts in England and Wales is essential if you’re considering using one for business purposes. Trust law draws on centuries of common law (equity) combined with modern legislation, creating a robust but complex framework that trustees must navigate carefully.
Key Legislation Governing Trusts
The primary legislation governing trusts in England and Wales includes the Trustee Act 2000, which modernised trustees’ investment powers and duties of care, and the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA), which governs trusts holding land. Additionally, the maximum trust duration in England and Wales is 125 years. All UK express trusts — including those holding business assets — must now be registered with the Trust Registration Service (TRS) within 90 days of creation, in compliance with anti-money laundering regulations. Importantly, the TRS register is not publicly accessible (unlike Companies House), so trust details remain private.
Some key areas covered by this legislation include:
- Duties and powers of trustees, including the statutory duty of care
- Investment powers and the requirement to take proper advice for trust investments
- Registration, reporting, and accounting requirements including annual trust tax returns (SA900) to HMRC
Responsibilities of Trustees
Trustees owe fiduciary duties to the beneficiaries. These are among the strictest obligations in English law. Trustees must act in good faith, avoid conflicts of interest, and never profit from their position (unless the trust deed expressly allows it). Their main duties are:
- Managing trust assets prudently, with the care and skill of a reasonable person (and a higher standard if they are professionals)
- Acting impartially between beneficiaries — balancing the interests of income beneficiaries against capital beneficiaries
- Keeping detailed records and accounts, and making these available to beneficiaries on request
Here’s a summary of key trustee responsibilities:
| Responsibility | Legal Requirement | Best Practice |
|---|---|---|
| Managing Trust Assets | Statutory duty of care under the Trustee Act 2000, with broad power of investment | Diversify investments to minimise risk; take professional advice for significant decisions |
| Record Keeping | Duty to account under the Trustee Act 2000; TRS registration with HMRC | Maintain accurate, up-to-date records of all transactions and trustee decisions |
| Reporting to Beneficiaries | Fiduciary duty to account — beneficiaries have the right to see trust accounts | Provide regular updates and annual accounts; minute all trustee meetings and decisions |
Understanding the legal framework and the weight of trustee responsibilities helps business owners use trusts properly. Getting it right means compliance with UK law, proper governance, and genuine protection for the business and its beneficiaries.
Benefits of Running a Business Through a Trust
Running a business through a trust can be a powerful planning tool when done correctly. It offers meaningful protection for business assets, tax-efficient planning opportunities, and a clear framework for the future of the business. Let’s look at each of these in turn.
Asset Protection
One of the most significant advantages of holding business assets — particularly company shares — in a discretionary trust is asset protection. Because no individual beneficiary has a fixed entitlement to the trust assets, those assets are generally outside the reach of a beneficiary’s personal creditors, divorce proceedings, or bankruptcy. If a beneficiary goes through a divorce, the answer to “what shares do you own?” is: none. The trust owns them. This is the principle Mike Pugh describes as: “What house? I don’t own a house” — and it applies equally to business interests held in trust.
This protection can be especially valuable for family businesses where the next generation may face marital breakdowns (the UK divorce rate is currently around 42%) or financial difficulties. A well-drafted discretionary trust keeps the business assets ringfenced for the family as a whole. Not losing the family money — or the family business — provides the greatest peace of mind above all else.
Tax Advantages
Trusts can be tax-efficient planning tools — though they are not tax avoidance schemes, and the tax position must be carefully considered with professional advice. For business owners, there are several potential advantages when structured correctly:
- Reducing inheritance tax liabilities — transferring business shares into a discretionary trust can, over time, remove growth in value from the settlor’s estate. Business Property Relief (BPR) may also apply at 100% for qualifying trading company shares, potentially meaning no IHT entry charge. From April 2026, BPR will be capped at 100% for the first £1 million of combined business and agricultural property, then 50% on the excess
- Capital gains tax planning — holdover relief may be available when transferring business assets into certain trusts, deferring the CGT charge until the trustees dispose of the assets
- Bypassing probate delays — trust-held shares pass seamlessly on death, avoiding the freeze on assets that occurs during the probate process (which can take 3–12 months or longer, with property-related matters potentially stretching to 18 months)
Succession Planning
Perhaps the most compelling reason for business owners to use trusts is succession planning. When company shares are held in a discretionary trust, there is no need for probate when the settlor dies — the trustees simply continue managing the shares according to the trust deed and the settlor’s letter of wishes. This means the business isn’t disrupted, there’s no public record of who inherits (unlike a will, which becomes a public document once a Grant of Probate is issued), and the transition can happen immediately.
Trusts allow business owners to pass control to the right people at the right time, whether that’s children who are ready to take on responsibility or trusted advisors who can manage the business until the next generation is prepared. As Mike Pugh puts it: “Plan, don’t panic.” Keeping families wealthy strengthens the country as a whole — and a well-structured business trust is one of the most effective ways to achieve that.
Types of Businesses That Can Be Run by a Trust
In the UK, different types of business structures can benefit from trusts in different ways. It’s important to understand that trusts don’t “run” a business in the traditional sense — the trustees hold the business assets (usually shares) and the business itself continues to operate through its directors and management. Let’s look at how this works for each business type.
Limited Companies
Limited companies are the most natural fit for trust ownership. Shares in a limited company are personal property that can be transferred into a discretionary trust. The company continues to trade as normal — with its own directors, employees, and bank accounts — but the shares are held by the trustees rather than by individuals personally. This is powerful for succession planning: when the original shareholder dies, there is no need for probate over the shares, no asset freeze, and no public disclosure. The directors carry on running the company without interruption. BPR may also be available on qualifying trading company shares, potentially eliminating the IHT entry charge when shares are placed into trust. For shares valued within the nil rate band (currently £325,000 per settlor), there would typically be no entry charge at all — even without BPR.
Partnerships
Partnership interests can also be held in trust, though this is more complex. A trust can hold a partner’s share in a partnership, which can be useful for asset protection and succession planning. However, the partnership agreement must be carefully drafted to permit this, and the other partners will typically need to consent. This approach is sometimes used in professional practices and family partnerships where long-term continuity matters.
Sole Traders
Sole traders don’t have a separate legal existence from their business, which makes the trust structure less straightforward. A sole trader cannot simply “put their business in a trust” because there are no shares to transfer. However, specific business assets — such as commercial property, equipment, or intellectual property — can be transferred into a trust. In practice, if a sole trader wants the full benefits of trust ownership, it often makes sense to incorporate as a limited company first and then transfer the shares into trust. This is a conversation to have with a specialist solicitor and accountant working together.
| Business Structure | Use of Trusts | Key Benefits |
|---|---|---|
| Limited Companies | Trust holds company shares; directors continue to run the business | Ownership protection, IHT planning (potentially using BPR), bypasses probate delays |
| Partnerships | Trust holds a partner’s interest in the partnership | Asset protection, succession planning, continuity for remaining partners |
| Sole Traders | Trust holds specific business assets (property, equipment); consider incorporating first for full benefit | Asset protection for specific property, potential IHT planning on business premises |
Setting Up a Trust to Run a Business
Setting up a trust to hold business assets is a significant decision that requires specialist legal advice. Done properly, it can deliver lasting benefits for asset protection, IHT planning, and business continuity. Here’s what’s involved.
Steps to Establish a Trust
The first step is to have a trust deed drafted by a specialist solicitor experienced in trust law — not a general practitioner. As Mike Pugh says: “The law — like medicine — is broad. You wouldn’t want your GP doing surgery.” The trust deed is the foundational document that sets out the trust’s terms, names the trustees and beneficiaries (or class of beneficiaries), defines the trustees’ powers, and establishes how the trust operates.
Next, the relevant business assets must be transferred to the trustees. For a limited company, this typically means executing a stock transfer form to transfer shares into the trustees’ names and updating the company’s register of members. For business property, it may involve a TR1 transfer at the Land Registry (if unencumbered) or a declaration of trust over the beneficial interest if there is a mortgage — because the lender’s consent is needed before legal title can be moved. Every transfer must be done correctly — a botched transfer can mean the trust doesn’t actually hold what you think it does.
The trust must then be registered with HMRC’s Trust Registration Service (TRS) within 90 days of creation. This is a mandatory requirement for all UK express trusts under anti-money laundering regulations.
Finally, the settlor should prepare a letter of wishes — a non-binding but highly influential document that guides the trustees on how the settlor would like the trust to be managed, including who should benefit and in what circumstances. This is particularly important for business trusts, where the letter might address whether the business should be retained, sold, or passed to specific family members.
Choosing the Right Trustee
Choosing the right trustees is one of the most important decisions in the entire process. You need a minimum of two trustees, and the settlor can be one of them — which means the business owner can remain involved in decision-making. Trustees can be individuals or a corporate trustee (a trust corporation). Up to four trustees can be registered as legal owners of trust property at the Land Registry.
Look for trustees with relevant experience, integrity, and sound judgement. For a business trust, at least one trustee should understand commercial matters. All trustees must understand their fiduciary duties — the obligation to act in the beneficiaries’ best interests, to avoid conflicts of interest, and to exercise their powers properly. It’s also essential to establish a clear process for removing and replacing trustees if circumstances change — whether through retirement, incapacity, or a breakdown in the trustee relationship.
| Key Considerations | Description |
|---|---|
| Experience | Trustees should have relevant experience in managing assets or businesses. For a trading company, commercial awareness is essential. |
| Integrity | Trustees must act with honesty and transparency. They are personally liable for breaches of trust. |
| Fiduciary Duties | Trustees must understand that they hold assets for the beneficiaries, not themselves. They must avoid self-dealing and act impartially. |
By setting up a trust correctly and choosing the right trustees, you can build a robust arrangement for your business — one that provides genuine asset protection, tax-efficient planning, and seamless succession for generations to come.
Trusts and Business Operations
When a trust holds business assets — typically shares in a trading company — the day-to-day business operations continue much as before. The company’s directors still run the business. The key difference is at the ownership level: the trustees are the shareholders, and they exercise shareholder rights (voting, receiving dividends) in accordance with their fiduciary duties.
Governance and Decision-Making
Good governance is critical when a trust sits above a business. The trustees must understand the distinction between their role as shareholders (making decisions at the trust level about distributions, voting, and strategy) and the directors’ role in running the business day-to-day. Getting this boundary right avoids confusion and legal complications.
Important governance and decision-making points include:
- Clearly defining the roles of trustees (as shareholders) vs directors (as managers of the company)
- Using the letter of wishes to guide trustees on the settlor’s intentions for the business — for example, whether to retain the business long-term or sell it at a certain point
- Ensuring trustees meet regularly, minute their decisions, and can demonstrate they’ve acted in the beneficiaries’ best interests
Funding and Capital Management
When a trust holds company shares, funding flows work differently from personal ownership. Dividends paid by the company go to the trustees, who then decide — in a discretionary trust — whether to distribute them to beneficiaries, reinvest them, or hold them within the trust. This creates a powerful layer of control and flexibility.
Strategies for good funding and capital management include:
- Working with an accountant to understand the tax implications of dividend payments to the trust — trust income above the first £1,000 is taxed at 39.35% for dividends, though beneficiaries may reclaim tax when distributions are made to them if they pay tax at a lower rate
- Considering whether profits should be retained within the company (often more tax-efficient) or distributed to the trust — this is a key decision that depends on the company’s and the beneficiaries’ circumstances
- Regularly reviewing the trust’s investment strategy if it holds assets beyond the trading company shares — trustees have a statutory duty of care when investing under the Trustee Act 2000
By getting governance, decision-making, and funding right, trusts can serve as an effective holding arrangement for businesses in the UK. It’s essential to work with a solicitor who specialises in trusts and an accountant who understands trust taxation for businesses — the two must work together.
Tax Implications of Business Trusts
Business trusts in the UK face a number of different tax charges, and understanding these is essential for effective trust management. Trusts are not tax-free — they are tax-efficient planning tools when used correctly. Here are the key areas you need to understand.
Income Tax Considerations
Income tax is a significant consideration for any trust holding business assets. Trusts are taxed at the trust rate of 45% on non-dividend income (such as rental income or interest) and 39.35% on dividend income. However, there is a standard rate band — the first £1,000 of trust income is taxed at the basic rate (20% for non-dividends, or 8.75% for dividends).
When trustees distribute income to beneficiaries, the beneficiaries receive a tax credit for the tax already paid by the trust. If a beneficiary pays tax at a lower rate than the trust rate, they can reclaim the difference from HMRC. This means the overall tax burden can be managed, but it requires careful planning and timely filing of the trust’s SA900 tax return.
- Trust income above £1,000 is taxed at 45% (non-dividends) or 39.35% (dividends)
- Beneficiaries can reclaim overpaid tax if their personal rate is lower than the trust rate
- Retaining profits within the trading company (rather than distributing dividends to the trust) is often more tax-efficient — corporation tax rates are typically lower than trust income tax rates
Capital Gains Tax
Capital Gains Tax (CGT) is another key consideration. Trusts pay CGT at 24% on residential property gains and 20% on other asset gains (such as the sale of company shares). The trust’s annual exempt amount is half the individual level — currently £1,500 — and this is shared between trusts created by the same settlor (with a minimum of £300 per trust).
However, there are important reliefs available. Holdover relief may be claimed when business assets are transferred into or out of certain trusts, deferring the CGT charge so there is no immediate tax to pay. Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may also apply in some circumstances, reducing the effective rate to 14% (rising to 18% from April 2026) on qualifying disposals up to a lifetime limit of £1 million — though eligibility is complex when trusts are involved and specialist advice is essential.
| CGT Rates for Trusts | Description | Available Reliefs |
|---|---|---|
| 24% (residential property) / 20% (other assets) | Standard CGT rates for trustees on disposals of trust assets | Holdover relief on transfers in/out of trust; Business Asset Disposal Relief (subject to strict conditions) |
| Annual exempt amount: £1,500 | Trustees’ annual CGT exemption — half the individual amount | Shared between trusts created by the same settlor (minimum £300 per trust) |
For more on trusts and inheritance tax, check out our page on whether a trust can help with inheritance tax planning.
Common Challenges When Running a Business Through a Trust
Running a business through a trust has genuine advantages, but it also comes with real challenges that must be managed proactively. These aren’t reasons to avoid using a trust — they’re reasons to get specialist advice and set things up properly from the start.
One of the most common areas of difficulty is compliance. Trusts have ongoing legal and tax obligations, and failing to meet them can result in penalties from HMRC or, in serious cases, personal liability for the trustees.
Compliance Issues
Compliance for a business trust covers several key areas:
- TRS registration within 90 days of creation, and keeping the register updated when details change
- Filing an annual trust tax return (SA900) with HMRC, reporting all trust income and gains
- Adhering strictly to the terms and powers set out in the trust deed — trustees who act outside their powers face personal liability
For discretionary trusts, there is also the 10-year periodic charge to manage. Trustees must calculate whether any IHT is due every 10 years (the maximum rate is 6% on trust property above the nil rate band, currently £325,000). For many business trusts — particularly where BPR applies to qualifying trading company shares — this charge may be zero, but the calculation and reporting must still be done. There are also proportional exit charges when assets leave the trust, calculated by reference to the last periodic charge. Missing these obligations can lead to penalties, so it’s vital to work with a solicitor and accountant who understand trust compliance requirements.
Conflicts Among Beneficiaries
Another significant challenge is managing conflicts among beneficiaries. In a family business trust, different beneficiaries may have competing views — one child may want to sell the business, another may want to run it, and a third may simply want cash distributions. If the trust deed is poorly drafted or the trustees aren’t clear about their powers, these disputes can become extremely damaging.
To minimise the risk of beneficiary conflicts:
- Draft a detailed, well-considered trust deed that gives trustees clear discretionary powers — in a discretionary trust, no beneficiary has a right to demand anything, which itself prevents many disputes
- Prepare a thorough letter of wishes that explains the settlor’s intentions, including how they’d like the business to be managed and what they want for each beneficiary
- Establish a clear process for removing and replacing trustees if one trustee becomes unable or unwilling to act, or if there’s a breakdown in the trustee relationship
Trustees must act impartially between beneficiaries and always in their best interests — even when that means making difficult decisions that not everyone agrees with. Sometimes a beneficiary is also a trustee, which can work well but needs careful management to avoid conflicts of interest. For more on this topic, check out whether a trustee can also be a beneficiary.
By understanding these challenges upfront and putting the right arrangements in place, business owners can use trusts with confidence — knowing that potential problems have been anticipated and planned for.
Case Studies: Successful Business Trusts in the UK
Trusts have a long and proven track record of being used to hold and protect business interests in the UK. Some of the country’s most enduring family businesses and charitable enterprises use trust arrangements — and the principles apply just as much to smaller family companies as they do to large estates.
Practical Applications in Family Businesses
Family businesses are where business trusts truly shine. Consider a typical scenario: a business owner builds a successful trading company over 30 years. Without a trust, when they die, the shares pass through their will, which means probate (3–12 months of delays), the shares are frozen during that period, and the will — naming exactly who inherits — becomes a public document. If IHT is due, it must typically be paid before the Grant of Probate is issued, potentially forcing a fire sale of business assets or requiring the executors to arrange bridging finance.
With a discretionary trust holding the shares, none of this happens. The trustees continue managing the shares immediately. The business carries on without interruption. The identity of the beneficiaries remains private. And if the shares qualified for BPR, there may be no IHT to pay at all. For the next generation, the trust also protects the shares from divorce — keeping family wealth within the family. As Mike Pugh puts it: “Keeping families wealthy strengthens the country as a whole.” Trusts are not just for the rich — they’re for the smart.
Charitable Trusts and Enterprises
Charitable trusts operate under a different legal framework (regulated by the Charity Commission rather than private trust law), but they demonstrate the same underlying principle: trusts provide a robust, flexible, and enduring arrangement for managing assets for defined purposes. Charitable trusts can hold trading subsidiaries, receive donations tax-efficiently, and ensure that assets are used for their stated charitable objectives indefinitely.
For private business owners, the lessons from both family and charitable trust arrangements are clear: trusts provide protection, continuity, and control that other structures simply cannot match. Whether you’re protecting a family company or ensuring a charitable mission endures, England’s 800-year-old trust law provides the tools to do it — but only if you get specialist advice to set things up properly. Plan, don’t panic.