Tax on UK family trusts or payments from a trust

Tax on UK family trusts is paid by trustees (the legal owners of the trust property) out of trust funds. If you receive payments from a trust, or set up a trust for your children or one from which you or your spouse or civil partner can benefit, you may also have tax to pay.

Trusts and Income Tax

Income Tax is a tax on income. A trust may receive income from things like interest earned on savings, 'dividend' income from stocks and shares or rental income from property. Different types of trust income have different rates of tax. The tax rate may also vary depending on which type of trust is set up.

To understand how trust income is taxed read the HM Revenue & Customs (HMRC) guide 'Trusts and Income Tax'. This also explains the main tax reliefs and deductions available to trustees for trust income.

Trusts and Income Tax - an HMRC guide

Trusts set up for your children

If you set up a trust for your children who are under the age of 18 you may have to pay Income Tax on the trust income or on payments made to your children by the trustees. Read the HMRC guide 'Parental trusts for minors' to find out more.

Parental trusts for minors - an HMRC guide

Trusts from which you or your spouse or civil partner can benefit

If you set up a trust from which you or your spouse or civil partner can benefit it counts as 'settlor-interested'. In this case, you will have to pay Income Tax on any income received by the trust, even if it's not paid out to you or your spouse or civil partner. But you can offset the Income Tax paid by the trustee against the amount of tax you are due to pay.

In some cases you may have more tax to pay, in others you may be due a refund. This will depend on your overall level of income.

Read the HMRC guide below to find out more.

Settlor-interested trusts - an HMRC guide

Trusts and Capital Gains Tax

Capital Gains Tax is a tax on the gain in value of assets or capital that you own. A trust may have to pay Capital Gains Tax if assets (like property or investments) are sold, given away or exchanged (disposed of) and have gone up in value since being put into trust. The trust will only have to pay the tax if the asset has increased in value above a certain allowance known as the 'annual exempt amount'.

For trusts the Capital Gains Tax allowance is lower than it is for individuals. Read the HMRC guide ‘Trusts and Capital Gains Tax’ to find out when a trust needs to pay Capital Gains Tax.

Trusts and Capital Gains Tax - an HMRC guide

Trusts and Inheritance Tax

Inheritance Tax is commonly understood as the tax paid on your estate when you die. However, it can also apply to your estate while you're alive, especially if you transfer some or all of it into a trust. Trusts may also have to pay Inheritance Tax when they reach a ten-year anniversary.

Read the HMRC guide 'Trusts and Inheritance Tax' to find out when a trust (or those transferring money into a trust) needs to pay Inheritance Tax.

Trusts and Inheritance Tax - an HMRC guide

Paying or claiming back tax on payments received from a trust

If you benefit from a trust you're called a 'beneficiary'. If you normally complete a tax return you must declare any payments you receive from a trust on it. If you don't normally complete a tax return it's important to tell your Tax Office about the payments. Either way, depending on your overall income, you may have extra tax to pay or be entitled to claim tax back.

The trustee must provide you with the information you need to complete your tax return or notify your Tax Office.

Trustees or beneficiaries can read the HMRC guide below to find out more.