How Are Trusts Taxed? Income & CGT

How are trusts taxed in the UK?

A trust can meet three taxes across its life. Trustees may pay income tax on income the trust receives, capital gains tax when they dispose of assets at a gain above the trust allowance, and the trust may face inheritance tax charges on entry, at ten-year points and on exit, depending on its type (gov.uk, trusts and taxes, as at July 2026, subject to change). The trust type drives which rules apply.

The most common split is between an interest in possession trust, where a beneficiary has a present right to the income, and an accumulation or discretionary trust, where trustees decide what happens to income and capital. Bare trusts are treated differently again, with tax usually falling on the beneficiary rather than the trustees (gov.uk, trusts and income tax, as at July 2026, subject to change).

Income tax on trusts

How trust income is taxed depends on the trust type. Most trusts do not pay income tax on income up to a small tax-free amount, normally £500, though that falls to £100 for each trust where the same settlor has set up five or more accumulation or discretionary trusts (gov.uk, trusts and income tax, as at July 2026, subject to change). Above that, the rate turns on the kind of trust.

Trustees of an accumulation or discretionary trust generally pay 45% on income other than dividends and 39.35% on dividend income. Trustees of an interest in possession trust generally pay 20% on non-dividend income and 8.75% on dividends, rising to 10.75% on dividends from 6 April 2026 (gov.uk, trusts and income tax, as at July 2026, subject to change).

Trust type	Other income	Dividends
Accumulation or discretionary	45%	39.35%
Interest in possession	20%	8.75% (10.75% from 6 April 2026)

Trust type

Other income

Dividends

Accumulation or discretionary

45%

39.35%

Interest in possession

20%

8.75% (10.75% from 6 April 2026)

Capital gains tax on trusts

Trustees usually pay capital gains tax when they sell or transfer trust assets at a gain, but only where the total taxable gain is above the trust's annual exempt amount (gov.uk, trusts and capital gains tax, as at July 2026, subject to change). The trust allowance is lower than an individual's, and the rate applies to the gain above it.

For the 2026 to 2027 tax year the annual exempt amount for most trusts is £1,500, rising to £3,000 where the beneficiary is vulnerable, such as a disabled person or a child who has lost a parent (gov.uk, as at July 2026, subject to change). Gains above the allowance are generally taxed at 24%, the rate of capital gains tax for trustees (gov.uk, work out your tax, as at July 2026, subject to change).

Item	Level (2026 to 2027)
Annual exempt amount (most trusts)	£1,500
Annual exempt amount (vulnerable beneficiary)	£3,000
CGT rate for trustees	24%

Item

Level (2026 to 2027)

Annual exempt amount (most trusts)

£1,500

Annual exempt amount (vulnerable beneficiary)

£3,000

CGT rate for trustees

24%

A worked example (illustration only). Trustees of a discretionary trust sell shares and make a taxable gain of £10,000 in the 2026 to 2027 tax year. They deduct the trust's annual exempt amount of £1,500, leaving £8,500 chargeable (gov.uk, as at July 2026, subject to change). At the 24% trustee rate that would be £2,040 of capital gains tax (gov.uk, work out your tax, as at July 2026, subject to change). Reliefs, losses and the type of asset can all change the figure, so this is general information rather than a calculation for any particular trust.

Inheritance tax and trusts

Inheritance tax can arise at several points in a trust's life, not only on death. Many discretionary and other relevant property trusts can face a charge when assets go in, a periodic charge at each ten-year anniversary, and an exit charge when assets leave, rather than a single charge on death (gov.uk, trusts and inheritance tax, as at July 2026, subject to change). The wider inheritance tax rules still frame it all.

Inheritance tax is charged at 40% on an estate above the threshold, or a reduced 36% where at least 10% of the estate passes to charity (gov.uk, as at July 2026, subject to change). The nil-rate band is £325,000 per person (gov.uk, as at July 2026, subject to change). The periodic and exit charges on trusts are worked out at lower rates than the headline 40%, and the calculations are detailed, so trustees often take advice. For the trust-specific rules, see our note on inheritance tax on trusts.

How beneficiaries are taxed

Beneficiaries can have their own tax position, separate from the trustees. Where a beneficiary receives trust income, it usually comes with a tax credit for tax the trustees have already paid, and the beneficiary may be able to reclaim some of it or owe more, depending on their own rate (gov.uk, beneficiaries and trust tax, as at July 2026, subject to change). The detail turns on the trust type.

With a bare trust, the beneficiary is generally treated as the owner for tax, so they report the income and gains themselves rather than the trustees paying (gov.uk, trusts and income tax, as at July 2026, subject to change). Once a trust becomes liable to tax, trustees usually have to register it with HMRC through the trust registration service and file a trust tax return (gov.uk, register a trust, as at July 2026, subject to change). Our guide to the trust registration service covers that step.

The trust type decides who pays and at what rate. Income, gains and inheritance tax each follow their own rules, and they rarely line up neatly.

Trust taxation in Scotland and Northern Ireland

Income tax, capital gains tax and inheritance tax are UK-wide, so the trust income tax rates, the trust capital gains allowance and the inheritance tax rules apply across Scotland, England, Wales and Northern Ireland alike (gov.uk, as at July 2026, subject to change). What differs is the surrounding trust and succession law. Scotland has its own law of trusts and its own rules on succession, and terminology can differ. Where a trust or its assets touch more than one UK nation, it can be worth taking advice in each. For the wider picture, see our estate planning guide.

Frequently asked questions

How are discretionary trusts taxed?

Trustees of a discretionary trust generally pay income tax at 45% on non-dividend income and 39.35% on dividends, above the small tax-free amount, and 24% capital gains tax on gains over the trust allowance (gov.uk, as at July 2026, subject to change). These trusts can also face inheritance tax entry, ten-yearly and exit charges, so the position is often detailed.

Do beneficiaries pay tax on trust income?

They can. Trust income paid to a beneficiary usually carries a credit for tax the trustees have already paid, so the beneficiary may reclaim some or owe more depending on their own rate (gov.uk, as at July 2026, subject to change). With a bare trust the beneficiary is generally taxed as if they owned the assets directly, so it varies by trust type.

What is the capital gains tax allowance for a trust?

For the 2026 to 2027 tax year the annual exempt amount for most trusts is £1,500, or £3,000 where the beneficiary is vulnerable, such as a disabled person or a child who has lost a parent (gov.uk, as at July 2026, subject to change). Gains above the allowance are generally taxed at the 24% trustee rate, and reliefs may change the figure.

Do trusts pay inheritance tax?

Many can, at points other than death. Relevant property trusts, including many discretionary trusts, can face an inheritance tax charge when assets go in, a periodic charge at each ten-year anniversary, and an exit charge when assets leave (gov.uk, as at July 2026, subject to change). The charges use rates below the 40% headline, and the sums can be involved, so trustees often take advice.

Are bare trusts taxed differently?

Yes. With a bare trust the beneficiary is generally treated as the owner for tax, so they report the income and gains rather than the trustees paying (gov.uk, as at July 2026, subject to change). Transfers into a bare trust may also fall outside inheritance tax if the person making the transfer survives seven years, depending on circumstances (gov.uk, inheritance tax on gifts, as at July 2026, subject to change).

Does a trust have to register for tax?

Often, yes. Once a trust becomes liable to income tax, capital gains tax or inheritance tax, trustees usually have to register it with HMRC through the trust registration service and file a trust tax return each year (gov.uk, as at July 2026, subject to change). Some trusts also need to register even without a tax liability, so it can be worth checking the current rules.

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at July 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.

How Are Trusts Taxed: Income and Capital Gains