Trusts are often discussed in hushed tones, as if they are only for the very wealthy. In practice, trust formation and management can be a practical, transparent way to protect family wealth, look after vulnerable beneficiaries, pass assets to the next generation tax‑efficiently and keep business continuity plans tidy. If you are a company owner, a landlord with several properties, a parent or grandparent thinking about future school fees, or an executor dealing with an estate, it is worth understanding how trusts work, how they are taxed in 2025/26 and what trustees must do year after year to stay compliant.

Official data shows trusts remain widely used: HMRC reports that the number of trusts and estates filing Self Assessment returns ticked up by around 0.3% in the year to 2023, with total trust and estate income of £3.1bn (HMRC, 2024). Meanwhile, the Office for Budget Responsibility expects inheritance tax (IHT) receipts to reach £9.1bn in 2025/26 – another sign that more families are being caught by fiscal drag and should review their estate planning early (OBR, 2025).

In this guide, we summarise what a trust is, why you might set one up, the main UK trust types, the step‑by‑step process of trust formation and management, and the ongoing legal and tax duties trustees carry. We also flag the Trust Registration Service (TRS) deadlines that catch many people out. If you need help deciding whether a trust is right for you, or support running one efficiently with modern digital tools, we are here to help.

What is a trust and why set one up?

A trust is a legal arrangement where one or more trustees hold and manage assets for the benefit of others (the beneficiaries) under the terms of a trust deed. The person who creates and funds the trust is the settlor. You might consider a trust to:

Protect family wealth for children or vulnerable beneficiaries
Control when and how beneficiaries receive funds
Ringfence assets from business risk or marital breakdowns (subject to anti‑avoidance rules)
Provide for a surviving spouse or partner while protecting capital for children from a previous relationship
Support succession planning for an owner‑managed business, especially where shares are involved

The main types of trust, in brief

There are several UK trust types, each taxed and administered differently. The most common are:

Bare (absolute) trusts: Beneficiaries are absolutely entitled to the capital and income. Typically used for simple gifts to children.
Interest in possession (IIP) trusts: A named beneficiary has a right to the income as it arises, while capital is preserved for others.
Discretionary trusts: Trustees have discretion over how and when to distribute income and capital among a class of beneficiaries – useful for flexibility.
Will trusts: Created on death via a will to control who benefits, when and on what terms.
Charitable trusts: Established exclusively for charitable purposes with specific tax advantages.

Choosing the right structure depends on what you want to achieve, how much control and flexibility you need, and the tax profile of the assets being placed into trust.

Trust formation and management: the key steps

Clarify the objective: Be specific about the purpose – for example, school fees, long‑term care, or ringfencing business shares.
Pick the trust type and draft the deed: We can work alongside solicitors to ensure the deed reflects your aims and gives trustees the powers they need.
Choose trustees: Select people (or a professional trustee) who are willing, competent and available to fulfil ongoing duties.
Value and transfer assets: Shares, property, cash, portfolios and life policies are common trust assets – all need proper valuation and records.
Register the trust: Most UK express trusts must register on HMRC’s Trust Registration Service. Since 6 October 2020, non‑taxable express trusts generally have 90 days to register from the point they become registrable (HMRC, 2020).
Open a bank/investment account in the trustee’s name: Keep trust money separate from personal funds.
Set up digital record keeping: We encourage cloud document storage, digital signatures and workflow tools so trustees can evidence decisions and meet deadlines with less admin.
Plan reporting and tax compliance: Returns, accounts, valuations and beneficiary statements need a calendar.

How trusts are managed over time

Trustees carry ongoing fiduciary duties: act in the best interests of beneficiaries, follow the trust deed, keep accurate records and treat beneficiaries fairly. In practice, that means:

Annual accounts and tax returns: Trustees may need to file self assessment returns, pay income tax, capital gains tax (CGT) and sometimes IHT charges.
Cashflow and investment management: Define an investment policy, review performance and maintain enough liquidity for expected distributions.
Minutes and decisions: Document every key decision – distributions, investments, changes of trustee – and keep evidence of professional advice sought.
Periodic reviews: At least annually, revisit the trust’s purpose, beneficiaries’ needs, distribution policy and tax profile.

Tax on trusts in 2025/26: What to watch

Different trusts are taxed differently, so tailored advice is essential. Key points for 2025/26 include:

Income tax: Discretionary trusts typically pay the additional rate on most income and a higher rate on dividends, with a small £500 de minimis amount shared between trusts created by the same settlor. Above that, tax applies to the whole amount, not just the excess. (HMRC guidance confirms).
Capital gains tax: Trustees can face CGT on asset disposals, with tighter annual exemptions than individuals. Specialist planning is often needed around property and share disposals.
Inheritance tax: Relevant property trusts may face entry, ten‑year and exit charges. With the OBR forecasting £9.1bn of IHT receipts in 2025/26 (OBR, 2025), regular reviews are sensible to manage exposure.
Reporting and transparency: Expect more data requests and cross‑border information sharing. The TRS is now a central compliance point for most trusts (HMRC, 2020).

Because thresholds and reliefs are frozen or narrowed, more estates and trusts are being dragged into higher effective tax rates – a trend the HMRC statistics and OBR projections both underline (HMRC, 2024; OBR, 2025).

When to bring in professional advisers

Trustees are personally responsible for getting things right. Bringing in advisers helps to:

Design the trust correctly at the outset: Avoiding expensive rewrites and unintended tax charges.
Implement digital governance: Secure, searchable records and electronic workflows reduce risk and cost.
Stay compliant: TRS updates, self assessment returns, CGT calculations, ten‑year IHT charges and exit charges can all be scheduled and handled for you.
Coordinate with your wider plan: A trust rarely stands alone. Wills, shareholder agreements, pensions and life assurance all need to be aligned.

Ready to set up or review a trust? Talk to us

Trust formation and management is about clarity, control and care – not complexity for its own sake. If you are thinking about whether a trust would help you provide for your family, protect business assets or tidy up your estate planning, start with a clear objective and a practical timetable. We can model the tax impact, set up robust digital record‑keeping, register and maintain the TRS entry, and produce the returns and accounts that trustees must file each year.

If you already act as a trustee, we can review your trust’s tax profile for 2025/26, stress‑test your investment and distribution policy, and put in place a simple compliance calendar so nothing is missed.

Get in touch with our team to discuss trust formation and management – and see how our modern, technology‑enabled approach can take the admin off your plate while keeping you fully in control.

Trust formation and management: What you should know