Using trusts: a plain-English introduction for families and business owners

Could a trust play a part in your family’s or your business’s future? Trusts can be a useful way to manage and pass on assets, but they bring their own tax rules and responsibilities.

Here’s a plain-English introduction to trusts in England and Wales. It’s a starting point for a conversation, not a recommendation.

What is a trust?

A trust is a legal arrangement where one person (the settlor) transfers assets, such as money, investments, land, buildings or shares, to others (the trustees) to hold and manage for the benefit of one or more people (the beneficiaries).

In effect, it separates legal ownership from the benefit of the assets. There are three main parties:

• Settlor: the person who creates the trust and puts assets into it. If you’re a business owner thinking about a trust, this may be you.
• Trustees: the legal owners of the trust’s assets. They manage the trust, decide how to use the assets within its terms and pay any tax due. They must act in the beneficiaries’ interests, and there must always be at least one trustee.
• Beneficiaries: the people who benefit from the trust. They might benefit from the income, the capital, or both.

The rules are usually set out in a trust deed, or in a will if the trust is created on death.

Common types of UK trust

• Bare trusts: the trustees hold the assets, but the beneficiary is entitled to all the capital and income. In England and Wales, the beneficiary can take the assets at 18. Bare trusts are often used to pass assets to young people.
• Interest in possession trusts: a beneficiary is entitled to the trust’s income as it arises, for example for life, while the capital usually passes to others later.
• Discretionary trusts: the trustees decide, within the terms of the trust deed, who benefits, how much and when. They’re sometimes used to provide for future needs, or for beneficiaries who may not be able to manage money themselves.

There are other types too, including settlor-interested trusts (see below). GOV.UK explains the main types of trust.

Why families and business owners use trusts

People use trusts to control and protect family assets, to look after assets for someone too young or unable to manage their own affairs, to pass on assets during their lifetime or through a will, and as part of succession planning for family business shares.

A trust shouldn’t be seen as a way to keep assets out of reach if your business runs into difficulty. Putting assets into a trust is a legal step with tax consequences, it can be hard to undo, and in some circumstances a transfer can be challenged. If that’s your reason for considering a trust, speak to a solicitor first.

Tax: what to know

Each type of trust is taxed differently. In outline:

• Inheritance Tax can apply when assets are put into a trust, at each 10-year anniversary of the trust, and when assets leave the trust. Some trusts, such as bare trusts, are treated differently.
• Capital Gains Tax can arise when assets that have gone up in value are put into a trust or taken out of it.
• Income Tax may be payable by the trustees on income the trust receives, and beneficiaries may have tax to pay on what they receive.
• Settlor-interested trusts: if you as settlor, or your spouse or civil partner, can benefit, special rules apply and you may be taxed on the trust’s income yourself.

Registering a trust with HMRC

Trustees must register many trusts on HMRC’s Trust Registration Service. This includes UK resident trusts liable to UK taxes such as Income Tax, Capital Gains Tax, Inheritance Tax or Stamp Duty Land Tax, and all UK resident express trusts even when there’s no tax to pay, unless they are excluded. The deadline depends on the type of trust and when it was created. For example, a trust with no tax to pay that was created after 6 October 2020 must be registered within 90 days of being created, and a taxable trust created on or after 6 April 2021 within 90 days of becoming liable for tax. HMRC’s guidance explains how to check if you need to register a trust.

Take legal advice first

Once set up, a trust can be difficult or impossible to undo. You’ll need a solicitor to advise on whether a trust suits you and to draft the trust deed or will. We can talk you through the tax questions to consider and work alongside your solicitor.

Sources

Our main sources are HMRC and GOV.UK:

• Trusts and taxes
• Trusts and taxes: Trusts and Inheritance Tax
• Trusts and taxes: Trusts and Capital Gains Tax
• HMRC: Check if you need to register a trust

Talk to us about trusts

If you’re wondering whether a trust could play a part in your family or business plans, talk to us about the tax side, alongside advice from your solicitor. Call us on 020 7164 0225, send us a WhatsApp message or email your tax question to hello@ibandco.co.uk.

You can also read about our Inheritance Tax planning and personal tax planning services.

First published 11 August 2026. Tax content checked on 9 October 2026. This article reflects the rules at the date it was first published. Where something has changed since, we’ve added an update note. Rules and rates change, so please check with us before acting.