What Is a Trust UK (2026)? A Plain-English Guide to Trusts

A trust is a legal arrangement under which one person (the settlor) transfers ownership of assets to one or more trustees, who are required to hold and manage those assets for the benefit of one or more beneficiaries. The key feature of a trust is the separation of legal ownership (held by the trustee) from beneficial ownership (belonging to the beneficiary). The trustee holds legal title on the Land Register, in a bank account, or in a share register — but they do not personally benefit from the assets. Their role is fiduciary: they must act in the best interests of the beneficiaries, follow the terms of the trust deed, and comply with their statutory duties under the Trustee Act 2000. The trust relationship has three essential elements: (1) Certainty of intention: the settlor must intend to create a trust — not just make a moral request or express a wish (a mere 'precatory trust' such as 'I hope my trustee will look after my children' is not sufficient to create a binding trust); (2) Certainty of subject matter: the assets subject to the trust must be identifiable — you cannot hold a trust over an uncertain portion of an estate; (3) Certainty of objects: the beneficiaries must be identifiable (for a fixed trust, each beneficiary must be capable of identification; for a discretionary trust, the class of potential beneficiaries must be conceptually certain). A trust that fails these three certainties is void. Trusts in England and Wales are governed by: (a) common law equity, developed through centuries of court decisions; (b) Trustee Act 1925; (c) Trustee Act 2000; (d) specific statutes for particular trust types (e.g. IHTA 1984 for trust taxation; Variation of Trusts Act 1958; Charities Act 2011 for charitable trusts). Trusts must be registered with HMRC's Trust Registration Service (TRS) if they are express trusts created on or after 6 October 2020 (with limited exceptions).

English trust law recognises several distinct categories of trust, each with different characteristics and tax treatment: (1) Bare trust (also called absolute trust): the simplest form. The trustee holds the assets as a nominee — the beneficiary has an immediate, absolute, vested right to the assets and income. The trustee has no discretion; they must do whatever the beneficiary instructs once the beneficiary is 18 (and has mental capacity). For IHT purposes, assets in a bare trust are treated as belonging to the beneficiary. Often used for junior ISAs, holding investments for children until they reach 18, and straightforward estate planning; (2) Interest in possession trust (also called a life interest trust or fixed interest trust): a beneficiary has a right to occupy property or receive trust income for their lifetime (or a specified period). The assets pass to remainder beneficiaries on the life tenant's death. Used in wills to allow a surviving spouse to live in the family home for life, with the property ultimately passing to children — protecting assets from a second marriage and ensuring generational transfer. The life tenant's interest is treated as part of their estate for IHT (post-2006 rules apply to trusts created on death; different rules apply to pre-March 2006 trusts); (3) Discretionary trust: trustees have discretion over who among a class of beneficiaries receives trust income and capital, how much, and when. No beneficiary has a fixed entitlement. Most flexible trust structure — useful for large estates, family investment, protecting vulnerable beneficiaries, or where future circumstances are uncertain. Subject to: entry charge (up to 20% on value above NRB going into trust from a living settlor); 10-year periodic charge (max 6% of value above NRB every 10 years); exit charge on distributions; (4) Charitable trust: assets held for charitable purposes (education, relief of poverty, advancement of religion, etc.) rather than for private beneficiaries. Regulated by the Charity Commission; significant tax advantages (IHT exempt; income tax relief; Gift Aid); (5) Will trust (testamentary trust): a trust created by a will that comes into effect on the testator's death. Common examples: bereaved minor's trust (IHTA 1984 s.71A); age-25 trust (s.71D); nil-rate band discretionary trust; life interest trust for surviving spouse.

Trusts are used for a wide variety of estate planning and wealth management purposes: (1) Protecting minor children: children under 18 cannot hold significant assets directly. A trust in the will allows assets to be managed for children until they reach a suitable age — the trustees apply income and capital for the children's maintenance and education. A bereaved minor's trust (IHTA 1984 s.71A) has no IHT periodic or exit charge if the child receives the funds at 18; (2) IHT planning: assets transferred into trust can reduce a taxable estate — subject to the 7-year rule for PETs (gifts to individuals) or the entry charge rules for discretionary trusts. Life insurance written in trust avoids the payout entering the estate — no IHT, no probate delay, immediate payment; (3) Protecting vulnerable beneficiaries: a trust allows assets to be managed for a beneficiary with a disability, mental health condition, or addiction problem who should not hold or manage assets directly. A vulnerable beneficiary trust (IHTA 1984 s.89) qualifies for special tax treatment; (4) Probate avoidance: assets in a lifetime trust do not form part of the estate for probate purposes. They pass directly to beneficiaries without the delay and cost of the probate process. This is particularly valuable for life insurance policies written in trust; (5) Second marriage protection: a life interest trust in the family home allows the surviving spouse to live there for life, while ensuring the property ultimately passes to children from the first marriage — rather than being inherited by a new spouse and potentially their children; (6) Successive interests: a trust can distribute assets in stages — for example, income to a spouse for life, then capital to children — enabling complex multi-generation planning; (7) Asset protection: in some circumstances (not to protect assets from known creditors — that is void as a transaction at an undervalue), a trust can provide some protection for family assets from future divorce or financial difficulty of beneficiaries.

Trusts are sometimes marketed as solutions to problems they cannot legally solve. Key limitations: (1) Trusts cannot avoid IHT on gifts that are not genuine: the 'gift with reservation of benefit' rule (IHTA 1984 s.102 and Schedule 20 FA 1986) means that if you transfer an asset into a trust but continue to benefit from it (for example, you put your home in a trust but continue living in it rent-free), the asset is treated as still in your estate for IHT. The trust does not achieve the intended IHT saving. Pre-owned asset tax (Finance Act 2004) creates a further income tax charge in some cases; (2) Trusts cannot defeat known creditors: a transfer into a trust with the intention of defrauding creditors is voidable under the Insolvency Act 1986. This includes deliberate deprivation of assets to avoid care home fees — local authorities can investigate and challenge transfers made when a care need was foreseeable; (3) Trusts cannot circumvent the Inheritance Act 1975: assets put into a lifetime trust in the 6 years before death may be brought back into the estate for the purposes of an Inheritance Act 1975 claim — the court can order provision from the notional estate (s.10 anti-avoidance); (4) Trusts are not free: setting up a trust with a solicitor typically costs £1,000–£5,000+. Annual trustee time and administration has a cost. IHT periodic charges apply to discretionary trusts (max 6% of value above NRB every 10 years). TRS registration with HMRC is required. Ongoing administration: trustees must keep accounts, file tax returns (SA900 for UK resident trusts), and comply with the trust deed; (5) Trusts are not always the best IHT solution: for many estates, efficient use of NRB + RNRB, regular gifting (annual exemption; normal expenditure out of income), and life insurance in trust is simpler and cheaper than complex trust structures.

Since 2020, the vast majority of express trusts in the UK must be registered with HMRC's Trust Registration Service (TRS). This is a significant compliance obligation that many trustees are unaware of: (1) What must be registered: all UK express trusts created on or after 6 October 2020 must register within 90 days of creation. This includes: discretionary trusts; bare trusts; interest in possession trusts; life interest trusts; most will trusts (if they last more than 2 years after death); pilot trusts; non-charitable purpose trusts; (2) Registration deadline for trusts created before 6 October 2020: all taxable trusts created before 2020 should have registered by 5 March 2022 under the earlier TRS regime. Non-taxable trusts (those with no UK tax liability) created before 2020 had until 1 September 2022 to register; (3) Ongoing obligation: trustees must keep the TRS record up to date. Changes in trustees, beneficiaries, or assets must be notified within 90 days; (4) Exemptions: certain trusts are exempt from TRS registration including: charitable trusts registered with the Charity Commission; trusts used to hold life or pension policy benefits that pay out on death or critical illness; co-ownership bare trusts where property is held by two or more people for themselves (e.g. joint property); statutory trusts arising under intestacy or from AJA 1982 survivorship clauses; (5) Penalty for non-registration: HMRC can impose penalties of £100 per breach for failure to register or update within the deadline. Failure to register is also a criminal offence under HMRC's anti-money laundering regulations in serious cases; (6) How to register: online at the government's TRS portal at gov.uk/trusts-taxes/trustees-tax-responsibilities.