The trust is one of English law's most distinctive contributions to global finance. Developed in medieval English equity courts, the trust concept — separating legal ownership from beneficial enjoyment — has been adopted by common-law jurisdictions worldwide and adapted by civil-law countries through equivalent structures. For internationally mobile families, UK trusts remain relevant not only for UK-based assets but as the model against which offshore trust structures in Jersey, Guernsey, Cayman, and BVI are largely derived.
Understanding how UK trusts work is foundational to informed estate planning, asset protection, and intergenerational wealth transfer.
The Core Concept: What a Trust Is
A trust is a legal relationship, not a legal entity. It arises when one person (the settlor) transfers assets to another person or persons (the trustees) to hold and manage for the benefit of specified individuals or purposes (the beneficiaries).
The critical distinction is between legal and beneficial ownership. The trustees are the legal owners — their name is on the title to the trust assets, and they can deal with those assets as owners. But they do not benefit from the assets themselves: they hold and manage the assets for the beneficiaries' benefit. The beneficiaries have an equitable (beneficial) interest in the trust assets, enforceable by the courts.
Three certainties are required for a valid trust:
- Certainty of intention: the settlor must intend to create a trust, not merely a gift or a moral obligation
- Certainty of subject matter: the property being placed in trust must be identifiable
- Certainty of objects: the beneficiaries (or the purpose, in the case of purpose trusts) must be identifiable
Main Types of UK Trust
Discretionary trust: The trustees have discretion over which beneficiaries to benefit and in what amount. No individual beneficiary has a fixed entitlement. The trustees can retain income within the trust, distribute it, or accumulate it for future distribution. Discretionary trusts are the most flexible and commonly used structure for estate and wealth planning purposes. They give the trustee the ability to respond to changing circumstances — a beneficiary who has financial difficulties, a changed tax environment, or changed family circumstances — without requiring court intervention.
Interest in possession trust (life interest trust): A named beneficiary has an immediate right to the income from the trust assets. The capital typically passes to other beneficiaries (remaindermen) on the life tenant's death. A common use is a surviving spouse — the trust provides the spouse with income for life, with the capital then passing to children. The life tenant is treated as owning the underlying assets for IHT purposes (the assets form part of their taxable estate).
Bare trust: The simplest form. The trustee holds assets for a specific beneficiary who has an absolute entitlement. Used commonly for holding assets for minor children (who cannot hold assets outright under English law). The beneficiary is treated as the beneficial owner immediately; there is no discretion. The assets are within the beneficiary's own tax calculation.
Charitable trust: Established for charitable purposes — relief of poverty, advancement of education, advancement of religion, or other purposes beneficial to the community. Charitable trusts qualify for significant tax advantages (income tax, CGT, IHT) and are overseen by the Charity Commission.
Purpose trust: Trusts for specific purposes that are not charitable are generally not valid under English law (the beneficiary principle requires someone who can enforce the trust). An exception is trusts for the maintenance of graves and tombs, and certain offshore jurisdictions (BVI, Cayman) allow purpose trusts more broadly.
Why Families Use Trusts
Estate planning: Assets held in a discretionary trust are not in the settlor's taxable estate (subject to the seven-year rule for lifetime settlements and the relevant property regime for IHT). Trusts allow wealth to pass to the next generation without passing through probate, reducing delay, cost, and publicity.
Asset protection: Trust assets are held by the trustees, not personally by the beneficiary. This can provide protection against a beneficiary's creditors, an ex-spouse in divorce proceedings, or an improvident beneficiary's own spending decisions. The degree of protection depends on how the trust is structured and on the legal system in which any challenge is brought.
Privacy: Trust assets do not appear in a will or a grant of probate, which is a public document. For families who value privacy around the distribution of their estate, trusts provide a degree of confidentiality.
Family governance: For business-owning families, a trust can be the vehicle through which business shares are held — allowing the trustees to manage the business without requiring unanimous agreement among all shareholders in each generation.
Life insurance: Whole-of-life insurance policies and term assurance policies are commonly written "in trust" so that the payout falls outside the policyholder's estate and is paid directly to the beneficiaries without probate delay.
IHT Treatment of Trusts: The Relevant Property Regime
Discretionary trusts (and most trusts established after 21 March 1986) fall within the relevant property regime for IHT. This involves three potential charges:
Entry charge: When assets are settled into a discretionary trust during the settlor's lifetime, the transfer is treated as a "chargeable lifetime transfer" (CLT). IHT is charged at 20% on the amount above the settlor's available nil-rate band (£325,000). Multiple settlements in the same seven-year period use up the nil-rate band cumulatively.
Ten-year anniversary charge: Every 10 years after the trust's establishment, IHT is charged at a maximum rate of 6% on the value of the trust fund. The calculation applies only to values above the nil-rate band available to the trust (which may be reduced by earlier transfers). The actual rate is often less than 6% depending on the trust's history.
Exit charge: When assets leave the trust — distributed to a beneficiary or appointed out — a proportionate charge applies, calculated by reference to the last 10-year anniversary charge and the proportion of the 10-year period that has elapsed since then.
The cumulative effect of the relevant property regime is that trust assets face a maximum of approximately 6% IHT every 10 years, rather than 40% on death. For assets held in trust over multiple generations, this can be significantly more IHT-efficient than outright ownership.
Business Property Relief (BPR) and Agricultural Property Relief (APR): Assets within a trust that qualify for BPR or APR receive the same reliefs against the 10-year anniversary charge as they would for death IHT purposes. Trusts holding trading business assets or agricultural land can therefore reduce or remove both the entry charge (if BPR/APR applies at settlement) and the 10-year charge. Note, however, that from 6 April 2026 full (100%) BPR and APR are capped at £2.5 million of qualifying assets per individual (raised from the £1 million originally announced); qualifying value above that allowance attracts only 50% relief (an effective 20% IHT rate), and AIM/unlisted shares receive only 50% relief and fall outside the £2.5 million allowance. These limits apply to trusts as well as to estates on death.
Trustee Duties
Trustees are in a fiduciary position — they must act in the interests of the beneficiaries, not their own interests. The primary duties include:
Duty of loyalty: Trustees must not profit from their position and must avoid conflicts of interest. A trustee who personally benefits from a trust transaction (beyond agreed trustee remuneration) is in breach.
Investment duty: Under the Trustee Act 2000, trustees must invest trust assets as if they were "a prudent person making investments for the benefit of other persons for whom they felt morally obliged to provide." In practice, professional trustees and discretionary fund managers managing trust portfolios must demonstrate that investments are appropriate to the trust's stated investment policy, that diversification is considered, and that advice is taken where the trustee lacks relevant expertise.
Duty to account: Trustees must keep accurate accounts of trust assets, income, and distributions, and must make these available to beneficiaries with a right to information.
Duty to act unanimously: Unless the trust deed specifies otherwise, trustees must act by consensus. A provision allowing majority decisions — or delegating day-to-day investment decisions to a professional investment manager — is standard in professionally drafted trust deeds.
Choosing Trustees
Professional trustees: Specialist trust companies (many based in Jersey, Guernsey, the Isle of Man, or UK law firms) bring expertise, continuity (they do not die or lose capacity), and accountability (they are regulated). Their fees (typically 0.5–1.5% of trust assets per year, plus transactional fees) are a real cost but may be justified for larger or more complex trusts.
Personal trustees: Family members or close friends are commonly appointed. They bring knowledge of family circumstances and cost nothing. The risks are: potential conflicts of interest (a trustee who is also a beneficiary), lack of continuity (death, incapacity, falling out with the family), and potential personal liability if investments go wrong.
A mix: The most common structure for family trusts is to appoint a professional co-trustee alongside personal trustees. The professional trustee provides expertise and continuity; the personal trustees provide family knowledge and oversight.
Trust protector: An optional appointment, particularly common in offshore trusts, of an independent individual with specific powers — typically the power to remove and replace trustees, veto major decisions, or amend the trust terms in defined circumstances.
Trust Registration Service (TRS)
Since 2017 (with expansion in 2022 following the Fifth Anti-Money Laundering Directive), most UK express trusts — whether or not they have tax consequences — are required to register with HMRC's Trust Registration Service.
Trusts with tax consequences (income, CGT, IHT, SDLT, or LBTT) must register. Since 2022, even trusts without tax consequences (bare trusts, certain family trusts holding no income-producing assets) must register unless they fall within an exemption.
Registration involves providing details of the trust, the settlor, trustees, and (in broad terms) the beneficiaries. Certain "beneficial owner" information is accessible to HMRC and law enforcement agencies, and in some circumstances to third parties who can demonstrate a legitimate interest. TRS is not a fully public register, but it represents a meaningful reduction in trust privacy compared to the pre-2017 position.
Overseas Trusts and UK Tax
For UK-resident beneficiaries receiving distributions from non-UK trusts, the UK tax treatment depends on whether the trust is classified as "offshore" (trustee not UK-resident) and on the beneficiary's own UK tax status.
UK-resident beneficiaries of offshore discretionary trusts are subject to UK income tax on trust income and distributions, subject to rules about the nature of the income and the "trust pool" provisions. The calculation is complex and requires specialist advice.
For the settlor: a UK-resident, UK-domiciled settlor who establishes an offshore trust broadly faces UK tax as if the trust were onshore. The settlor trust charges (income tax on trust income retained offshore to the extent the settlor and their spouse have a power to benefit) are designed to prevent UK tax being deferred by settling income offshore.
Compliance Caveat
Trust law and trust taxation are complex areas that change regularly. The information in this article reflects the general position under UK law as understood in mid-2026 and is for educational purposes only. Individual trust structures and tax outcomes depend on the specific trust deed, the residence and domicile of the settlor and trustees, and the nature of the trust assets. You should seek advice from a qualified solicitor and tax adviser before establishing or amending any trust structure. Rules in other jurisdictions will differ. Investments held within trusts can fall as well as rise in value.
How Global Investments Can Help
For high-net-worth families with complex assets and intergenerational planning needs, trust structures — properly designed and professionally managed — remain one of the most powerful tools available. Global Investments works with specialist solicitors, trust companies, and tax advisers to help clients assess whether a trust is appropriate for their circumstances, choose the right structure and jurisdiction, and manage the trust over its lifetime.
We also advise internationally mobile families on whether existing trust structures established in the UK or offshore remain optimal given changes in their residence, domicile, and the evolving tax landscape. Contact our team to arrange a private consultation.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.