Budget briefing note for trustees

1. Changes to the Taxation of Trusts

Trustee liabilities and inheritance tax (IHT)

New statutory rules will govern how trustee liabilities are deducted when valuing trust property for IHT purposes, aligning their treatment with personal liabilities and strengthening anti-avoidance rules.

This is particularly relevant to “home loan” (or “double trust”) scheme structures but could also have wider implications.

The new anti-avoidance rules will apply to trusts in which a beneficiary has a “qualifying interest in possession” (certain types of life interest trust) and those should be checked in response.

Trustee emigration – capital gains tax (CGT) relief

Usually, when a UK resident trust “emigrates” (i.e. ceases to be UK resident), there is a CGT exit charge which taxes unrealised gains.

Subject to some limited caveats, the new relief stops this exit charge biting if a trust:

• Temporarily becomes UK tax-resident because a trustee moves to the UK.
• Ceases to be UK tax-resident later that same tax year or in the following tax year.

This could be very helpful in cases where a trustee move has accidentally pulled a trust into the UK tax net.

What to do now

• Identify trusts in which any beneficiaries have qualifying interests in possession and take advice on the impact of the IHT changes on the treatment of those trust’s liabilities.
• Identify any trusts which have become UK resident since 6 April 2025 as a result of trustee relocations and determine whether they could benefit from the CGT exit charge relief.
• Bear the new CGT exit charge relief in mind for future trustee relocations.

2. Trustee investments

Protected Cell Companies (from 28 October 2026)

Gains realised within cells of protected cell companies (PCC) are now likely to be attributed to UK resident cell owners (or attributed to settlors/added to “pools” in the case of owners which are non-UK resident trustees).

Changes to income tax rates on property and savings income (6 April 2027)

There will be a 4% increase in income tax rates on property and savings income. Note that savings income can include certain deemed forms of     income (such as deemed income from offshore bonds).

Tax credits for beneficiaries of UK resident discretionary trusts remain limited to 45%.

High Value Council Tax Surcharge (HVCTS) (6 April 2028)

The annual charge (of between £2,500 and £7,500) will be payable by the legal owners of residential properties in the UK worth over £2 million. A 100% premium applies to properties left unfurnished and unoccupied for over 12 months.

What to do now

• Check whether any PCC holdings are affected.
• Review the trust’s investment profile to assess whether income tax changes merit adjustments (e.g. to the investments themselves, or the structure used to hold them).
• Identify trust properties likely to exceed £2m and plan for the HVCTS (including taking steps to avoid the premium on unfurnished and unoccupied property if relevant).

3. On the horizon

The government have reiterated their commitment to ongoing review of the residence-based “FIG” tax regime for individuals and to overhauling the personal tax offshore anti-avoidance framework (including the transfer of assets abroad regime, the settlements code and CGT attribution rules). It seems unlikely that significant changes will be introduced before 2028.

The government will proceed with its planned reforms to the taxation of corporate distributions, with a technical consultation on draft legislation in 2027. The proposals could fundamentally reshape how returns of value are taxed for individual and trust shareholders and may make it significantly harder to extract value from companies at capital rates. They will apply prospectively from April 2028.

The provisions include a new temporary tax charge which will apply to loans or advances made by non-UK resident companies to participators (including UK resident trustees). It will be payable by the participator, not the company.

What to do now

• Trustees contemplating restructurings, significant distributions or estate planning involving corporate interests should keep the possible changes to the taxation of distributions (and loans) in mind. There is a window to act prior to April 2028.
• As and when the new personal tax anti-avoidance framework is published, trustees of non-UK resident structures will need to consider the impact on their settlements.

This note is a general summary and not advice. Please contact us before taking action.