Key takeaways
- Putting assets into most trusts is a chargeable lifetime transfer, taxed at 20% on the amount above the nil-rate band.
- Most trusts are in the relevant property regime, with a charge of up to 6% every ten years and exit charges when assets leave.
- Bare trusts are treated as belonging to the beneficiary, and gifts into them are potentially exempt transfers.
- Trusts must usually be registered on HMRC's Trust Registration Service, even if no tax is due.
- From April 2026 a separate £2.5 million allowance for 100% business and agricultural relief applies to trusts.
Trusts let you give assets away while controlling who benefits and when. They are widely used for children, vulnerable relatives and life insurance. But most trusts have their own Inheritance Tax (IHT) regime, with charges when assets go in, every ten years and when assets come out.
Types of trust
| Trust | How it works | IHT treatment |
|---|---|---|
| Bare trust | The beneficiary is absolutely entitled; trustees hold the assets for them | Treated as the beneficiary’s property; gifts in are potentially exempt transfers |
| Interest in possession trust | A beneficiary has the right to the income (for example a life interest in a will trust) | Many lifetime trusts created since 2006 are relevant property trusts; will trusts giving a spouse a life interest are treated as the spouse’s estate |
| Discretionary trust | Trustees decide who benefits and when | Relevant property regime |
| Trusts for disabled people and bereaved minors | Special conditions | Favourable treatment outside the main charges |
The relevant property regime
Most trusts set up during life since 22 March 2006, and discretionary trusts created by will, are relevant property trusts. They face three types of charge.
1. Entry charge
Transferring assets into a relevant property trust during life is a chargeable lifetime transfer (CLT). Tax is due at 20% on the amount above your available nil-rate band (£325,000, less other CLTs in the previous seven years). If you die within seven years, the tax is recalculated at 40%, with credit for tax already paid.
Example
Olivia puts £400,000 into a discretionary trust for her grandchildren, having made no other chargeable gifts. The first £325,000 is within her nil-rate band. The excess of £75,000 is taxed at 20%: £15,000 if the trustees pay, or more if Olivia pays (because the tax is then grossed up). She should consider using her annual exemptions to reduce the gift.
2. The 10-year (periodic) charge
On each tenth anniversary of the trust, the trustees pay a charge on the value of the trust property above the available nil-rate band. The maximum rate is 6% (30% of the 20% lifetime rate), and in practice it is often much lower, or nil for trusts within the nil-rate band.
3. Exit charges
When assets leave the trust, for example when trustees pay capital to a beneficiary, an exit charge applies, based on the rate at the last 10-year anniversary and the time since. Exits in the first quarter (three months) after creation or an anniversary are free of charge.
Gifts with reservation and settlor-interested trusts
If you can benefit from a trust you created, the assets are generally still treated as part of your estate under the gift with reservation rules, and they may also be relevant property. Discounted gift trusts and loan trusts are designed to navigate these rules; take advice before using them.
Business and agricultural property in trusts
From 6 April 2026, a £2.5 million allowance for 100% business and agricultural property relief applies to qualifying property held in trusts, with 50% relief above it. This affects the 10-year and exit charges for trusts holding family companies or farmland. See Business Property Relief.
Capital Gains Tax when assets go into trust
Transferring assets other than cash into a trust is a disposal for Capital Gains Tax at market value. For relevant property trusts, gift holdover relief is usually available, so the gain passes to the trustees, unless the settlor can benefit from the trust. See gift holdover relief.
Income tax on trusts
Trusts pay their own Income Tax: discretionary trusts pay 45% on most income above a £500 de minimis amount, and 39.35% on dividends. Beneficiaries receiving income from discretionary trusts get a credit for tax paid by the trustees.
Registering a trust
Most UK express trusts, and some non-UK trusts, must be registered on HMRC’s Trust Registration Service, whether or not they pay tax. Trustees must register within 90 days of the trust being created or becoming liable to register, and keep the details up to date.
Life insurance in trust
Writing a life insurance policy in trust is one of the most common and simple uses of a trust. The payout goes to the beneficiaries outside your estate, and quickly, without waiting for probate. Premiums paid out of income are usually covered by the gift exemptions.
Frequently asked questions
Do you pay Inheritance Tax when putting money in a trust?
For most trusts, tax at 20% is due on the amount above your available nil-rate band. Gifts into bare trusts are potentially exempt instead.
What is the 10-year charge on a trust?
A periodic charge on the value of a relevant property trust every ten years, at a maximum effective rate of 6% on the value above the nil-rate band.
Does a bare trust pay Inheritance Tax?
No. The assets are treated as belonging to the beneficiary, so the gift is a potentially exempt transfer and the trust has no periodic or exit charges.
Do I need to register my trust with HMRC?
Most trusts must be registered on the Trust Registration Service within 90 days, even if no tax is due.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.