Navigating UK Trusts: A valuable tool in family planning

Trusts were first used in England almost 800 years ago, when knights leaving for the Crusades handed their land to trusted friends to manage in their absence. The idea has stood the test of time, because it remains one of the most effective ways to protect and pass on assets. However, the rules around trusts have changed over time, and today’s families need to think beyond tax savings.

A trust is a legal arrangement that lets a person transfer assets to trustees who hold them, for the benefit of chosen beneficiaries. While many trusts are created in a Will, they can also be set up during your lifetime to safeguard wealth, support loved ones, and manage tax efficiently.

Common types of trust

Different trusts serve different purposes. Some of the most common family trusts are:

• Discretionary Trusts – These give trustees flexibility to decide how, when, and to whom income or capital is paid
• Bare Trusts – These hold assets in the trustees’ names, but the beneficiary has an absolute right to them, often used for children’s savings or first homes
• Life interest trusts – These give a named beneficiary, often a spouse, the right to income or use of assets for life, with capital passing to others later, frequently used in second marriages.

Legal and practical responsibilities

Trustees must act in the best interests of beneficiaries, follow the trust deed, and manage assets with care. They are also responsible for record-keeping, compliance, and fair decision-making. Most UK trusts must be registered with HMRC on the Trust Registration Service, with details kept up to date. With duties ranging from tax reporting to investment oversight, many families seek professional help to ensure everything is done properly.

Tax rules affecting trusts

Trusts can be effective tax-planning tools, but they are subject to their own regimes. Inheritance tax may apply when assets are transferred into certain trusts, and some structures face ten-yearly or exit charges. Trust income is taxable, often at higher trust rates than individuals pay, and capital gains tax can arise on disposals. Trustees must report income and gains to HMRC, and in some cases beneficiaries also have reporting duties. The rules are complex and change often, so professional advice and planning is essential to avoid unexpected liabilities.

Who can benefit from using a trust?

Trusts are not just for very wealthy families. For example, they are often established by blended families who want to balance the needs of a surviving spouse with the long-term interests of children from a previous relationship. They can also provide security for vulnerable or disabled beneficiaries, offering long-term support without affecting entitlement to state benefits. Many parents and grandparents use trusts to plan ahead for education costs, such as school fees or university expenses, while others turn to them as a way of shielding assets from divorce settlements or creditor claims.

In all these situations, a trust offers a structured, flexible and protective framework for managing and passing on wealth. Before setting one up, however, it is worth considering the benefits of it versus the associated complexities.

Trust arrangements with Attwaters

Arranging your affairs during your lifetime can reduce the eventual tax burden and increase what beneficiaries receive. Trusts remain a valuable tool for families in the UK, however, their role has changed.

Attwaters has been advising on tax and trusts for over a century. Our Wills, Trusts & Probate team team can design a structure that reflects your wishes while navigating today’s complex tax laws.

Once a trust is in place, we can also offer full support with its administration. This includes advising trustees on their duties, registering and maintaining the trust with HMRC, managing tax filings, and guiding distributions so that beneficiaries’ circumstances and tax positions are properly considered.

Tax law is complex and constantly evolving. With expert guidance, a well-planned trust can protect your assets, support your loved ones, and leave a meaningful legacy. For more information, get in touch with us by emailing enquiries@attwaters.co.uk or calling 0330 221 8855.