How are trusts taxed?

The basics

A trust is treated as a separate taxpayer for many purposes. GOV.UK explains that trustees are responsible for reporting and paying tax on behalf of the trust. The main taxes that can apply are:

• Income Tax, on income such as interest, rent or dividends
• Capital Gains Tax, when trust assets are sold or given away at a gain
• Inheritance Tax, at certain points in the life of some trusts

Stamp Duty Land Tax (or Land Transaction Tax in Wales) may also apply where land or property is bought.

The type of trust makes a big difference. If you are unsure which type you are dealing with, our guide to the main kinds of trust is a useful starting point.

All figures below come from GOV.UK at the time of writing (October 2026) and can change.

Income Tax

Bare trusts

With a bare trust, the beneficiary is usually taxed on the income as if it were their own. There are special rules where a parent sets up a trust for their own child.

Interest in possession trusts

GOV.UK lists rates for these trusts of 20% on most income and 10.75% on dividends (the dividend rate was 8.75% up to 5 April 2026). The beneficiary entitled to the income may then pay more, or reclaim some, depending on their own tax position.

Discretionary and accumulation trusts

GOV.UK shows a trust rate of 45% on most income and 39.35% on dividends. Most trusts do not pay Income Tax on income up to a tax-free amount, normally £500, and this is shared out where a settlor has set up several trusts. Trustees do not get the dividend allowance. Read more in our guide to how discretionary trusts work.

Capital Gains Tax

Trustees may pay Capital Gains Tax when they sell or transfer trust assets that have gone up in value. GOV.UK shows a trustees’ tax-free allowance for the 2026 to 2027 tax year of:

• £1,500 for most trusts
• £3,000 where the trust has a vulnerable beneficiary, such as a disabled person or a child whose parent has died

Some reliefs may be available, depending on the assets and the trust type.

Inheritance Tax

Many trusts fall under what HMRC calls the “relevant property” rules. Under these, GOV.UK explains that Inheritance Tax may be due:

• when assets are put into the trust during someone’s lifetime and exceed the available threshold (GOV.UK gives a rate of 20% where the trustees pay)
• at each ten-year anniversary of the trust
• when assets are taken out of the trust, known as an exit charge, at up to 6%

Some trusts are treated differently, such as certain trusts for disabled people or bereaved minors, and some older interest in possession trusts. Where a trust holds business or agricultural property, changes to business and agricultural relief that took effect from 6 April 2026 may also be relevant. These areas need specialist input.

Tax returns and deadlines

Where a trust has income or gains to report, trustees usually file a Trust and Estate Self Assessment tax return (SA900). GOV.UK gives deadlines of 31 October for paper returns and 31 January for online returns. Many trusts also need to be on HMRC’s register. Our guide to Trust Registration Service rules explains who must register and when.

A practical example

A discretionary trust holds savings that earn interest, plus some shares. The trustees work out the income, check whether it is above the tax-free amount and report it on the trust’s tax return. Later, they sell some shares at a gain. They compare the gain with the trustees’ Capital Gains Tax allowance. Ten years after the trust began, they check whether a ten-year anniversary charge applies. A professional often helps with each of these steps.

What about beneficiaries?

Beneficiaries may also have tax to think about. When trustees pay income to a beneficiary, it may come with a tax credit. Depending on their own income, the beneficiary may owe more tax or be able to reclaim some. GOV.UK has a page on beneficiaries paying and reclaiming tax.

When to get professional help

Trust tax is one of the more technical areas of UK tax. It is often worth getting advice from a chartered tax adviser, an accountant or a solicitor with trust experience if:

• you are setting up a trust and want to understand the tax effects before you act
• you are a trustee and need to file returns or calculate a ten-year charge
• the trust holds property, business assets or overseas assets
• you are a beneficiary and are unsure about reclaiming tax

WillHarbour does not give tax advice, and nothing here should be taken as a recommendation for any particular arrangement.

Next steps

If you would like to talk this through with someone qualified, you can read more about how we can help with trusts, or answer a few short questions in our trusts questionnaire. WillHarbour is an introduction service, not a law firm. With your permission, we share your enquiry with up to three suitable firms, which will explain their own fees and their referral arrangement with us before you decide anything.