Trust

In simple legal terms, a trust is where property is controlled by one person (a Trustee) for the benefit of another (a beneficiary).

A main reason to use a trust is for the protection of assets. Although the settlor (the person who transferred the property into trust) is giving away property and is therefore unable to benefit from it, a trust enables them to retain control of the assets (as a trustee) and the flexibility as to who should ultimately benefit from the assets. This can help protect assets for the future generations.

Depending on the type of trust used, the terms of the trust can enable funds to be accumulated when the beneficiaries are too young to receive the money and can then be distributed when the funds are required, later in life. The use of a trust therefore can enable grandparents to retain control of how and when the income is taken and how it is used.  

• All trusts must be registered through the Trust Registration Service (TRS)
• Trusts can be very beneficial for grandparents to pass wealth to grandchildren but there are tax implications if the trust is set up by parents for their minor children
• Creating trusts for appreciating assets, such as land outlined for development, can also be very tax-efficient for inheritance tax (IHT) purposes as it removes the subsequent growth from the settlor’s estate

• Tax will depend on the trust, and income may be subject to tax at 40% and then reconciled on the beneficiaries' tax return
• The income could be mandated directly to the individual and taxed at their personal tax rates
• While having a trust set up in lifetime can result in IHT charges, the IHT is subject to a different set of rules and applied at much lower rates, and so can often be easier to manage  
• The main tax benefit of a trust is that, while the assets are held in trust, as long as the settlor is unable to enjoy or continue to benefit from the property within the trust, then the property falls outside of their estate for IHT purposes

For the settlor 

• Assets are protected for longevity 
• Enables lifetime tax planning to get your estate in order 
• Reduce your potential inheritance tax liability 
• Reduce income tax 

For the trustee (subject to trust requirements) 

• Retains control over the land use 
• Has control over the income going to the beneficiaries 

For the beneficiary 

• Enables use of land 
• Owns and controls the trading business

More about forming and running a trust Trusts and taxes: Overview - GOV.UK 

Further help on choosing the right business structure for you Get help and support for your business – GOV.UK 

More about inheritance tax How Inheritance Tax works: thresholds, rules and allowances: Overview – GOV.UK