The short version: A trust is a legal arrangement where assets are held by trustees for the benefit of beneficiaries. It’s used for protecting assets, managing inheritance, and sometimes tax planning.
Who’s involved?
The settlor puts assets into the trust. Trustees manage it according to the trust’s rules. Beneficiaries receive the benefit, whether that’s income, capital, or both.
Why set one up?
Protecting assets for children until they’re old enough to manage them. Providing for someone with disabilities without affecting their benefits. Managing inheritance across generations. Sometimes reducing Inheritance Tax (though rules are complex).
How are trusts taxed?
It’s complicated. Trusts have their own tax rules for Income Tax, CGT, and IHT. Income paid to beneficiaries is taxed on them. The rates and thresholds are often less generous than for individuals.
Thinking about setting up a trust or received income from one? Get advice on the tax implications.
