What is a Trust?
A Trust is a legal arrangement which involves a person, the “Settlor”, transferring legal title to assets to another person or body, the “Trustees”, to hold for the benefit of one or more persons, (the Beneficiaries), which may include the Settlor. There are many advantages to setting up a trust including mitigating tax and estate planning.
There are many types of trust which can be set up during the Settlors lifetime by way of a Trust Deed or upon death made under a Will. In a lifetime trust assets are then transferred to the Trustees.
What happens when I die?
The assets held by the Trustees will not form part of your estate, and will continue to be held for the remaining Beneficiaries as set out in the Trust Instrument, so there is continuity. The Trustees will take into account any wishes you may have expressed as to what you would like to happen after your death. The Trust can be ended by distributing all the assets to the Beneficiaries.
Tax treatment of Trusts
Different trusts are treated in different ways for tax purposes. It is vital when setting up a trust to obtain expert tax advice. Depending on the type of trust, when income and capital gains arise in a trust tax might be charged on the trustees, the beneficiaries or the Settlor.
Personal Injury Trusts
A Personal Injury Trust is a legal arrangement whereby Trustees of your choice act as guardians of your personal injury monies. Monies that can be held in Trust are monies that you have received as a consequence of your personal injury. Typically this may include damages awards, accident related insurance policies or charitable donations.
The setting up of a Personal Injury Trust can protect the claimant’s eligibility to means tested benefits whilst allowing them to benefit fully from their compensation. This means they can keep both their means tested benefits and their award, provided benefit rules are adhered to.
If you and/or your partner currently receive state benefits or believe that in the future you may need to make a claim then it is highly advisable to seek guidance as to whether a Personal Injury Trust may be beneficial for you.
Changes to the International Tax Compliance Regulations 2025
Recent changes to the International Tax Compliance Regulations 2025 mean that there is now a mandatory requirement for certain trusts to be registered with HMRC for international tax information exchange purposes. This is entirely separate from the Trust Registration Service.
The purpose of the rules is to provide HMRC with greater information on trusts which hold financial assets so that the information can be shared with international tax authorities if a person associated with a trust has a tax liability in another jurisdiction.
The Trusts which will be required to be registered are those which are classified as “financial institutions” or “trustee-documented trusts”.
In brief, a trust will be classified as a “financial institution” if its assets are invested with a discretionary fund manager and more than 50% of its income is derived from the investment portfolio. A trust is “trustee-documented” if it has a reporting financial institution as trustee.
The deadline for the registration of existing trusts is 31 December 2025 or by 31 January of the following calendar year following the creation of a new trust which falls within the scope.
Contact us
For further information or to book an appointment with one of our Wills, Trusts & Probate team please contact us by email at [email protected], complete the enquiry form or call 01733 882800 for Peterborough, 01832 273506 for Oundle or 01480 411224 for Huntingdon.
