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What is a trust?

A trust is a legal arrangement where one or more 'trustees' are made legally responsible for holding assets. The assets - such as land, money, buildings, shares or even antiques - are placed in trust for the benefit of one or more 'beneficiaries'.

The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into trust (the 'settlor'). The settlor's wishes for the trust are usually written in their will or set out in a legal document called 'the trust deed'.

The purpose of a trust

Trusts may be set up for a number of reasons, for example:

• to control and protect family assets
• when someone is too young to handle their affairs
• when someone can't handle their affairs because they are incapacitated
• to pass on money or property while you are still alive
• to pass on money or assets when you die under the terms of your will - known as a 'will trust'
• under the rules of inheritance that apply when someone dies without leaving a valid will (England & Wales only)
  

There are several types of UK family trusts and each type of trust may be taxed differently. Find out more by following the link to types of UK family trusts and their tax implications.

There are other types of 'non-family' trusts. These are set up for many reasons. For example, to operate as a charity, or to provide a means for employers to create a pension scheme for their staff. Find out more by following the link below to heritage, charitable or business-related trusts.

• Types of trust and tax implications

• Heritage, charitable or business-related trusts

What is 'trust property'?

'Trust property' is a phrase often used for the assets held in a trust. It can include:

• money
• investments
• land or buildings
• other assets, such as paintings, furniture or jewellery - sometimes referred to as 'chattels'
  

The cash and investments held in a trust are also called the trust 'capital' or 'fund'. This capital or fund may produce income, such as interest on savings or dividends on shares. The land and buildings may produce rental income. Assets may also be sold producing gains for the trust. The way income is taxed depends on the type of income and the type of trust.

• Types of trust and tax implications

What is a settlor?

A settlor is a person who has put assets into the trust. This is known as 'settling' property. Assets are normally put into the trust when it's created, but they can also be added at a later date. The settlor decides how the assets in the trust and any income received from it should be used. This is usually set out in the trust deed.

In some trusts, the settlor can also benefit from the assets they’ve put in. These types of trust are known as 'settlor-interested' trusts and they have their own tax rules.

• Settlor-interested trusts

The role of the trustees

Trustees are the legal owners of the assets held in a trust. Their role is to:

• deal with trust assets in line with the trust deed
• manage the trust on a day-to-day basis and pay any tax due on the income or chargeable gains of the trust (find out more by following the link below)
• decide how to invest the trust's assets and/or how the assets in the trust are to be used - although this must always be in line with the trust deed
  

The trust can continue even though the trustees might change. However, there must be at least one trustee. Often there will be a minimum of two trustees. One trustee may be a professional familiar with trusts - a lawyer, for example - while the other may be a family member or relative.

• Trustee tax responsibilities

What is a beneficiary?

A beneficiary is anyone who benefits from the assets held in the trust. There can be one or more beneficiary, such as a whole family or a defined group of people. Each beneficiary may benefit from the trust in a different way.

For example, a beneficiary may benefit from:

• the income only - for example, they might get income from letting a house or flat held in a trust
• the capital only - for example, they might get shares held on trust when they reach a certain age
• both the income and capital of the trust - for example they might be entitled to the trust income and have a discretionary interest in trust capital
  

If you're a beneficiary you may have extra tax to pay or be entitled to claim some back depending on your overall income.

• Beneficiaries - paying and reclaiming tax on trusts

Trust law in Scotland

The treatment of trusts for tax purposes is the same throughout the United Kingdom. However, Scots law on trusts and the terms used in relation to trusts in Scotland are different from the laws of England and Wales and Northern Ireland.

Get professional help for your trust

Understanding trusts can be difficult so you may want to work with a solicitor or tax adviser. Remember though that the trustee is still legally responsible for the trust's tax affairs. You'll find some links below to professional organisations - although not all professionals are registered with them.

If you want HM Revenue & Customs (HMRC) to communicate with your agent or professional representative on Income Tax and Capital Gains Tax matters, you'll need to fill in form 64-8. Follow the link below to find out more about completing form 64-8.

If you want HMRC to communicate with your agent or professional representative on Inheritance Tax issues you'll need to enter their details on form IHT100.

• Find a solicitor - the Law Society of England and Wales Opens new window

• Find a solicitor - the Law Society of Northern Ireland Opens new window

• Find a solicitor - the Law Society of Scotland Opens new window

• Help from the Society of Trust and Estate Practitioners (STEP) Opens new window

More useful links

• Mental capacity and the law (government, citizens and rights section)

• Completing form 64-8 Opens new window

• IHT100 - Inheritance Tax Account Opens new window

Useful contacts

• Contact HMRC Trusts & Estates