We explain the steps trustees need to follow. Trustees must report and settle any tax liability arising from a trust that earns income or records gains. One trustee is typically named the principal acting trustee and will take the lead on the annual filing with HMRC.
In plain language, we walk through a familiar example: a discretionary trust set up for grandchildren’s education. We cover record keeping, the Trust and Estate Tax Return (SA900) and the payment stage — when HMRC confirms what is owed and how to settle it.
Our guide highlights the common pitfalls that add unnecessary cost. These include late filing penalties, late payment interest and misunderstanding how different trust types are taxed. We keep the options simple and practical throughout.
For readers who want background on setting up a trust, see our guide on opening a trust for UK homeowners.
Key Takeaways
- Trustees carry personal legal responsibility for reporting and settling trust tax.
- Nominate a principal acting trustee for liaising with HMRC — but all trustees remain jointly liable.
- Keep clear records across the tax year (6 April to 5 April) for easier filing.
- Missing the 31 January deadline triggers avoidable penalties and daily interest.
- Seek specialist advice when the rules are unclear — the law, like medicine, is broad, and you need the right specialist.
What trustees are responsible for when a trust has tax to pay
Trustees carry real legal duties when a trust produces income or records capital gains. We explain who HMRC holds accountable and what types of tax charges can arise during the tax year.
Principal acting trustee: where there are two or more trustees, one person should be nominated to handle HMRC enquiries and filings. That role helps co‑ordinate, but the remaining trustees are equally answerable. HMRC can seek tax, interest and penalties from any trustee — not just the lead one — if obligations are not met.
- Income tax on rental income, savings interest, dividends and other trust receipts;
- Capital gains tax (CGT) when trust assets are sold or otherwise disposed of;
- Inheritance tax (IHT) reporting — for example, form IHT100 at ten-year anniversary charges or when capital leaves a discretionary trust.
Tax responsibility can begin after a death, when a will trust takes effect and assets pass from the estate to the trustees. But it applies equally to lifetime trusts that hold income-producing assets or investments. Trustees must check what the trust received, what was paid out to beneficiaries and what the trust retained. They must keep clear records and file on time — otherwise interest and penalties follow automatically.
For trustees wanting guidance about inheritance tax planning with trusts, see our note on how trusts can help reduce inheritance tax.
Confirm your trust type because it affects who pays and the tax rates
Start by confirming which type of trust you are dealing with. The type of trust drives who reports income, who meets the tax liability and which rates apply. Getting this wrong at the outset leads to incorrect returns and unnecessary cost.
Bare trust
In practical terms: a bare trust means the beneficiary has an absolute right to the capital and income once they reach age 18 (16 in Scotland). The trustee is essentially a nominee — they hold the legal title but the beneficiary is the beneficial owner. Under the principle in Saunders v Vautier, an adult beneficiary can collapse the trust entirely and demand the assets be transferred to them. For tax purposes, HMRC treats the beneficiary (not the trustee) as the owner. The beneficiary reports all income and gains on their own personal tax return, using their own personal allowances and tax rates. This makes bare trusts simpler from a trustee filing perspective, though trustees still have Trust Registration Service (TRS) obligations.
Interest in possession trust
Here a life tenant (also called an income beneficiary) holds a right to receive income from the trust assets — or to occupy a trust property. The life tenant normally carries the income tax burden at their own personal rates, even though the trustees administer the assets and make payments. The capital is held for the remainderman (capital beneficiary) who receives the assets when the life interest ends. Trustees may still need to file the SA900 to report any capital gains within the trust. It is worth noting that post-March 2006 interest in possession trusts are generally treated as relevant property for IHT purposes, unless they qualify as an immediate post-death interest (IPDI) or disabled person’s interest.
Discretionary trust
Trustees have absolute discretion over who receives income or capital, and when. No beneficiary has a right to anything until the trustees decide — and that is the key protection mechanism. This is the most common type of family trust (used in the vast majority of family trust arrangements) and it provides the strongest asset protection — but it comes with higher trust tax rates. Discretionary trusts can last up to 125 years under the Perpetuities and Accumulations Act 2009. When beneficiaries receive distributions, they report amounts on their own tax return and can claim a tax credit for the tax the trustees have already paid at trust rates.
- Check the trust deed: the wording in the deed determines the trust type and the reporting position. If you are unsure, ask the solicitor who drafted it.
- Mistakes in trust type classification lead to incorrect reporting, wrong tax rates being applied and avoidable penalties.
- For HMRC’s summary of trustee duties, see trustees’ tax responsibilities.
Registering the trust with HMRC and getting a UTR before you file
Getting the trust registered on the Trust Registration Service (TRS) and securing a Unique Taxpayer Reference (UTR) must come before you can file a tax return. Since the 5th Money Laundering Directive was implemented in the UK, virtually all express trusts must register — including bare trusts — even when no tax is payable.
New trusts must be registered on the TRS within 90 days of creation. That 90‑day window is strict, and missing it can result in penalties and complicate later filings. It is worth noting that the TRS register is not publicly accessible (unlike Companies House), so registration does not compromise the family’s privacy.
Which changes must be updated within 90 days
Trustees must keep TRS details current. Reportable changes that require an update within 90 days include:
- Update within 90 days: any change to trustees — including the appointment or removal of a trustee.
- Update within 90 days: changes in beneficiary information, settlor details or any person who has control over the trust.
- Why this matters: TRS records must match what trustees report on their tax returns. Inconsistencies invite HMRC enquiries.
Trustees also need the trust’s UTR before submitting an SA900. The UTR is issued separately from TRS registration and is used for all Self Assessment filings. Treat both registration and updates as protective housekeeping steps — they reduce the risk of HMRC queries and help present clear, consistent figures at the end of the tax year.
Work out what income and gains the trust received in the tax year
Make a complete inventory of income streams and disposals for the tax year (6 April to 5 April). We start small and practical: list every receipt, sale and reinvestment. This straightforward step makes the return far easier and significantly reduces the risk of HMRC queries.
Common sources of trust income
- Rent from property: include gross rent, letting agent statements, any service charges collected and repairs paid by tenants. Deduct allowable expenses to arrive at the taxable figure.
- Savings interest: bank and building society interest, including interest reinvested within the trust’s accounts. Note that trusts do not benefit from the personal savings allowance — all interest is taxable.
- Dividends: dividend vouchers and statements from investment platforms. Trustees cannot claim the personal dividend allowance, so all dividends are taxable at trust rates.
Tracking disposals for capital gains
Record every disposal of trust assets. That includes sales of shares, funds and property — as well as transfers out of the trust to beneficiaries, which can also trigger a CGT charge unless holdover relief is claimed.
Keep purchase dates, original acquisition costs, improvement costs and selling costs (including solicitor and agent fees). These figures feed directly into the capital gains calculation. Where holdover relief was claimed on an earlier transfer into the trust, the base cost may be lower than the market value at that time — check the original paperwork carefully.
Records checklist for HMRC
Collect and keep for at least six years after the end of the relevant tax year:
- bank statements and letting agent summaries;
- dividend vouchers and interest statements;
- investment platform reports and sale confirmations;
- purchase invoices and solicitor completion statements for property disposals;
- trustee meeting minutes recording decisions to buy, sell or distribute.
Why this matters: accurate records reduce stress at the end of the tax year, speed up the return and lower the chance of delays or enquiries. For detailed guidance on gains reporting, see the trusts and capital gains guidance on GOV.UK.
Income tax on trust income for 2024/25: rates, allowances and what trustees need to check
We set out the 2024/25 income tax rules so trustees can match the correct rate to each type of receipt. Start by separating non-dividend income (rent, interest, trading income) from dividend-type income. That separation makes the calculation straightforward and avoids costly surprises.
Interest in possession trusts
What applies: interest in possession trusts pay tax at basic rate: 20% on non-dividend income and 8.75% on dividend-type income. However, the life tenant is ultimately responsible for reporting the income on their own tax return, paying any additional tax due at their marginal rate. Trustees deduct basic rate tax before passing income to the life tenant.
Discretionary trusts
What applies: discretionary trusts pay at the trust rate: 45% on non-dividend income and 39.35% on dividend-type income. These are the highest rates in the income tax system. The first £1,000 of trust income benefits from basic rate treatment (20% / 8.75%), but everything above that is taxed at the full trust rates. When distributions are made, beneficiaries receive a tax credit for the 45% already paid and can reclaim any overpayment if their own tax rate is lower.
The £1,000 standard rate band and how it is shared
Discretionary and accumulation trusts receive a £1,000 standard rate band, which is taxed at basic rate rather than the trust rate. If total trust income stays within this band, the effective rate is considerably lower.
However, where one settlor has created more than one trust, the £1,000 band is divided equally between them — with a minimum of £200 per trust. For example, if a settlor created five trusts, each receives a £200 standard rate band. This prevents the benefit from being multiplied artificially.
Practical points for trustees:
- Check each income stream and apply the correct rate for the trust type.
- Do not assume the personal dividend allowance or personal savings allowance applies — trustees cannot claim either.
- Keep the calculations clear: list receipts by type, apply the correct rate and note any standard rate band split across multiple trusts.
Capital Gains Tax for trusts: thresholds, rates and when to report
Trustees should identify potential capital gains early in the tax year so that figures are ready before any sale, transfer or distribution to a beneficiary.
Annual exempt amount
The annual exempt amount for trusts in 2024/25 is £1,500 — exactly half the individual allowance. Gains below this threshold are tax-free.
If a beneficiary qualifies as a vulnerable person (for example, a disabled person or a minor with a deceased parent), the exempt amount rises to £3,000. Always start with the correct threshold when calculating any gains liability.
Rates for 2024/25
For residential property gains, the rate for trusts is 24% throughout the 2024/25 tax year.
Non‑residential gains (shares, funds, non-residential property) are taxed at 20% for disposals up to 29 October 2024 and at 24% from 30 October 2024 onwards following the Autumn Budget changes. Trustees must apply the correct rate based on the actual date of disposal.
When gains arise and key reporting points
Capital gains tax arises on disposals of trust assets, including outright sales, certain transfers and some share reorganisations.
Importantly, gains can also crystallise when capital is distributed to a beneficiary — unless holdover relief is claimed (which is available on certain transfers out of discretionary trusts). Trustees must check whether each distribution triggers a CGT charge, claim any available relief, and include the figures on the SA900.
- Gather investment platform sale confirmations, solicitor completion statements and original purchase records.
- Deduct the annual exempt amount (£1,500), then apply the correct rate for the asset type and disposal date.
- Record calculations clearly in trustee minutes so they can be explained or evidenced if HMRC queries arise.
How to pay trust tax to HMRC after filing your return
Once the SA900 return is filed, HMRC either accepts the self-assessed figure or issues an amended calculation setting out the balance due.
We recommend reading the calculation line by line. It shows the income and gains reported, any reliefs claimed, tax already paid at source (for example, tax deducted from bank interest or dividends) and the final amount you must clear. If the figures do not match your records, contact HMRC promptly — do not simply pay and hope for the best.
What the 31 January deadline means
The online filing deadline is 31 January following the end of the tax year (so 31 January 2026 for the 2024/25 tax year). That same date is also the payment deadline for any tax due.
Missing this date triggers automatic penalties: a £100 late filing penalty is immediate, with further daily penalties and percentage-based surcharges accumulating if the delay continues. Interest runs on unpaid tax from the due date. Even if you are waiting for information, trustees must plan to meet the deadline or proactively contact HMRC to agree a time-to-pay arrangement.
Practical payment options and choosing what works
Trustees commonly use these methods. Choose the one that matches your trust’s banking arrangements and gives a clear audit trail for trustee records.
- Bank transfer (Faster Payments or CHAPS — include the trust’s UTR as the payment reference so HMRC can allocate correctly).
- Direct debit (useful for regular instalments if a time-to-pay arrangement is agreed — requires set-up via the HMRC online account).
- Cheque (still accepted — make payable to “HM Revenue and Customs only” with the UTR on the back. Keep proof of posting).
| Method | Speed | Best for |
|---|---|---|
| Bank transfer (Faster Payments) | Same day or next working day | One-off payments — quickest and most reliable |
| Direct debit | 3–5 working days to set up | Trusts with agreed instalment arrangements |
| Cheque | 5–10 working days | Trusts with formal cheque-signing protocols |
“Keep a clear audit trail. Save payment confirmations and record the decision in trustee minutes — who authorised it, from which account, and the reference used.”
Simple safeguards reduce mistakes. Always use the UTR reference HMRC gives, pay from the trust’s own bank account (not a personal account) and keep receipts. Record the payment decision in trustee minutes and file the evidence with your trust records for at least six years.
If the amount charged differs from your expectation, contact HMRC promptly and keep a written note of the call — including the date, the person you spoke to and the reference number. We suggest keeping copies of every payment confirmation alongside the trust deed and annual returns.
Completing and submitting the Trust and Estate Tax Return (SA900)
Filling in the SA900 brings together income, gains and any claims into one form. The return requires figures for all trust income, any capital gains or losses and the allowances or reliefs being claimed. Precision matters: errors create HMRC queries and delay final settlement.
What the SA900 covers
The form records:
- all trust income for the tax year, separated by type (rental, interest, dividends, other);
- capital gains and the supporting calculations;
- tax already paid or deducted at source;
- any claims, reliefs (such as holdover relief) or allowances applied;
- details of distributions made to beneficiaries during the year.
Deadlines and late filing penalties
After the end of the tax year on 5 April, paper SA900 returns must arrive at HMRC by 31 October. Electronic submissions via commercial software are due by 31 January.
Late filing triggers an automatic £100 penalty — even when little or no tax is due. After three months, daily penalties of £10 per day (up to 90 days) can follow. After six months and twelve months, further percentage-based penalties apply. The message is clear: file early and avoid entirely unnecessary costs.
Using software or professional support
We recommend using HMRC-recognised software or appointing an accountant with trust experience where there are multiple income sources, capital gains events or IHT reporting obligations. A specialist accountant helps ensure distributions are correctly reported, the right reliefs are claimed and the risk of mistakes is minimised. As Mike Pugh often says, the law — like medicine — is broad, and you would not want your GP doing surgery.
“Prepare the figures before you start the form. Good records throughout the year make the return straightforward — it is the scramble for missing paperwork in January that causes problems.”
After paying HMRC: what trustees must give beneficiaries and update with HMRC
Settling the tax bill is not the last step — trustees must then provide clear statements to beneficiaries and keep HMRC records up to date.
We explain what trustees must issue and why it matters for each beneficiary’s own tax position.
Providing beneficiaries with an R185 (trust income) certificate
When a distribution is made, the beneficiary needs to know the gross income, the tax the trust has already paid and the net amount received. The form R185 (Trust Income) is the standard way to provide this. It allows the beneficiary to include the income on their own Self Assessment return and claim a tax credit for the trust tax already paid — potentially reclaiming some of it if they pay tax at a lower rate.
How to handle statements when there is more than one beneficiary
When several beneficiaries share distributions, each must receive an R185 showing figures that match their individual share. Give separate statements to each beneficiary and keep copies in the trust records — these are your evidence of proper disclosure if HMRC or a beneficiary raises questions later.
| Action | Who receives it | Why it matters |
|---|---|---|
| R185 statement issued | Each beneficiary who received a distribution | Shows gross income and tax credit so beneficiary can report correctly |
| Copy retained in trust records | Trustees | Proof of proper disclosure if queries arise |
| Individual figures for each share | Each beneficiary | Enables accurate personal tax reporting and avoids disputes |
Ongoing duties: updating the trust’s details when circumstances change
Trustees must use the TRS online service to update records whenever key facts change — within 90 days. This includes changes to trustees, beneficiaries, the settlor’s details, or the trust’s contact information. Keep the registration accurate each year as part of your annual trustee housekeeping. An outdated TRS record can trigger penalties and complicates any future interactions with HMRC.
“Good communication reduces confusion and protects trustees. If questions arise later, clear records and timely statements show you acted properly.”
Inheritance tax touchpoints trustees should not miss
Transfers of property or capital can trigger IHT reporting duties even when no income arises and no income tax is due. We flag the key moments where inheritance tax becomes relevant so trustees can act early and avoid penalties.
IHT reporting may be required when assets enter or leave a trust, on the settlor’s death (if a chargeable lifetime transfer was made within seven years), or at fixed intervals during the trust’s lifetime. Trustees should check whether any transfer creates a chargeable lifetime transfer (CLT) or needs disclosure on form IHT100 and its supporting schedules. For most family trusts where the value held is below the nil rate band (currently £325,000 per settlor — frozen since 2009 and confirmed frozen until at least April 2031), the actual IHT charge will often be nil — but the reporting obligation may still exist.
Periodic and exit charges
Discretionary trusts (and other trusts within the relevant property regime) face a ten-year periodic charge on each anniversary of the trust’s creation. The maximum rate is 6% of the trust property value above the available nil rate band. For many family trusts holding a home worth less than the NRB, this charge works out at zero — but trustees still need to calculate it and keep a record of the valuation and the working.
Exit charges arise when capital leaves the trust — for example, when trustees appoint assets to a beneficiary. The exit charge is proportional to the last periodic charge. In practical terms, if the periodic charge was nil, the exit charge will also be nil. Even where a charge does apply, the maximum effective rate is typically well under 6% — often less than 1% of the value distributed.
Practical steps for trustees
- Check paperwork: the trust deed, any Grant of Probate (for will trusts) and estate accounts or schedules of assets.
- Get valuations early: property and investment portfolio values must be evidence-based (professional valuations for property, platform statements for investments) and dated to the relevant anniversary or distribution date.
- Use form IHT100: file promptly where required and attach the correct supporting schedules. There is no automatic reminder from HMRC — trustees must diarise these dates themselves.
- Record decisions: trustee minutes, valuations and correspondence with HMRC protect both the trustees and the beneficiaries if questions are asked later.
“Act early on valuations and paperwork. Missing an IHT touchpoint — especially a ten-year anniversary — can result in penalties and interest that are entirely avoidable with proper planning.”
Conclusion
Keep the process straightforward. Confirm the trust type, register with the TRS and keep details up to date, work out income and gains for the tax year, file the SA900 return and then settle any balance by the 31 January deadline.
Good routines matter more than expertise. Clear records, regular checks and timely communication with beneficiaries reduce the risk of interest, penalties and family disagreements. Trustees who act promptly protect both the beneficiaries and themselves from personal liability.
Remember that income tax, capital gains tax and inheritance tax can all arise across a single tax year. Take a practical example: a discretionary trust holding an investment portfolio for grandchildren — list the dividend and interest receipts, record any share disposals, check for a ten-year anniversary, file the SA900, issue R185 statements to beneficiaries and keep everything filed for at least six years.
If the rules become complex — and they often do — seek specialist professional support. As Mike Pugh often says, the law, like medicine, is broad: you would not want your GP performing surgery, and you should not rely on a generalist for trust tax. For practical guidance on how beneficiaries can receive trust assets, see our guide on how to access a trust fund in the UK.