Managing a trust in the UK

People set up trusts as a way to manage assets on behalf of others. While the settlor plays a key role by putting the assets into the trust, it’s the trustee who handles the day-to-day management and makes decisions about what happens to those assets. In this article, we’ll cover the role of a trustee, who can fill this position, and what tasks are involved in managing a trust.

A trust is a legal arrangement where one person (known as the settlor) gives assets, like money, property, or investments, to another person or group (the trustee) to manage for the benefit of someone else (the beneficiary).

An example you might be familiar with is a parent (the settlor) putting money or property into a trust to ensure it’s managed for the benefit of their children (the beneficiaries). This is often referred to as a trust fund or child trust fund, which is a specific type of trust designed to provide financial support, typically over time or under certain conditions. The trustee would then be responsible for managing a trust fund, making decisions like investing the money or distributing it to the children at certain times.

Managing a trust involves a range of responsibilities, including:

• Handling tax affairs, which involves registering the trust with HMRC and keeping the Trust Registration Service updated. This is an online system, and there are deadlines for registering and keeping the details of the trust updated. Managing a trust also involves completing annual tax returns and accounts, and paying income tax and capital gains tax, as required.

• Managing and distributing the trust’s assets according to the wishes of the settlor (the person who created the trust) outlined in the trust deed or will.

• Overseeing the day-to-day management of trusts, such as paying tax bills and maintaining accurate records.

• They decide how to invest, sell, or otherwise manage the assets in the trust, ensuring they are secure and best-placed to grow.

A trustee is a person responsible for managing the assets held in a trust on behalf of its beneficiaries. They are legally required to handle these assets according to the instructions of the person who set up the trust (the settlor), typically outlined in a trust deed or will. While trustees have legal ownership of the assets, they must act in the best interest of the beneficiaries and follow the settlor’s wishes.

It’s possible for a trust to have multiple trustees, in which case one may be chosen to act as the lead trustee. This person handles administrative tasks, including managing the trust’s tax affairs.

Sometimes, the settlor themselves may act as the trustee, at least to begin with. However, if they become unable to continue for whatever reason, the responsibility shifts to other designated trustees. The main requirement is for the assets in the trust to be used appropriately and in line with the instructions – that could be for providing income, growing wealth, or distributing funds after the settlor’s death.

Yes, it’s possible for a trustee to also be a beneficiary of the same trust. This is quite common in family trusts, where a family member may manage a trust while also benefiting from its assets.

However, it’s not always straightforward. In the case of discretionary trusts, a trustee who is also a beneficiary usually cannot act alone when making decisions about the trust. A co-trustee is often required to approve these decisions to ensure fairness and proper oversight.

Plus, combining the roles of trustee and beneficiary can lead to potential conflicts of interest. For example, it might be difficult for the trustee to balance their responsibility to act in the best interest of all beneficiaries while also keeping an eye on their own benefit.

Trustees need to keep detailed records to manage a trust properly and meet legal requirements. This includes documenting meetings and decisions, maintaining copies of the trust deed and any amendments, and keeping contact details of members up to date.

The exact records required may vary depending on the type of trust you’re managing.

At the very least, trustees should maintain the following, according to HMRC:

• Bank statements for current and deposit accounts

• Records of interest paid into accounts (e.g., from banks or building societies)

• National savings bonds or certificates

• Certificates from life assurance companies

• Dividend vouchers from companies or unit trusts

• Stockbroker reports and dividend records

• Details of trustee expenses

• Records of taxes paid by the trust

• For discretionary trusts: records of income payments to beneficiaries

If the trust uses online banking, make sure to log any transactions, as you might not receive paper statements.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

The trustee is responsible for managing the trust’s taxes, including reporting and paying any owed tax. If the trust doesn’t meet its obligations, trustees can face penalties or interest charges.

Taxes are generally paid from the trust’s funds, but if the settlor benefits from the trust, they are responsible for taxes on any income or gains. 

The most relevant types for tax purposes are:

1. Bare trusts: Beneficiaries have full rights to both the trust’s income and capital. They are responsible for reporting and paying taxes based on their own rates.

2. IIP trusts: Beneficiaries only have the right to income. If income is paid directly to them, they are responsible for reporting it.

3. Accumulation or discretionary trusts: Trustees have discretion over how income is distributed, and they are responsible for reporting and paying taxes.

So what tax is due on each type of trust?

• Income tax:

  • No tax is due if the income is under £500.

  • If income exceeds £500:

    • IIP trusts are taxed at 8.75% on dividends and 20% on other income.

    • Accumulation or discretionary trusts are taxed at 39.35% on dividends and 45% on other income.

• Capital gains tax:

  • Trustees pay capital gains tax only if the taxable gain exceeds the trust’s £1,500 tax-free allowance for the 2024/2025 tax year.

• Inheritance tax:

  • Some trusts are not subject to inheritance tax during the beneficiary’s life but are taxed at 40% on their death.

Because trust tax rules can be fairly complex, it can be helpful to work with a tax adviser.

Choosing the right person to manage a trust depends on how complex the trust is and your family’s specific needs. Many people with trusts opt for a professional trustee. Professionals like solicitors, accountants, or trust companies have the expertise needed to handle the trust’s assets. Additionally, some multinational banks offer trust management services as part of their private banking options.

Some people prefer a combined approach, appointing both a professional trustee and a family member or trusted friend as co-trustees. With this approach, the family benefits from professional trust management, but also the personal insight into the family’s needs and dynamics.

It’s important to select someone who is not only trustworthy but also financially responsible. Given the significant power a trustee holds, they must be honest and capable of overseeing investments effectively for the benefit of the beneficiaries.

Managing a trust effectively requires a unique blend of “hard” financial skills and soft skills. Trustees must be knowledgeable, organised, and able to communicate clearly, as they hold the legal responsibility for the trust’s assets. Experience in law, finance, or estate management can therefore be particularly helpful.

Key qualities for managing trusts include:

• Integrity and judgement – They behave ethically and make fair decisions.

• Responsibility – Managing a trust is a long-term commitment.

• Business acumen – Financial or investment knowledge for managing assets.

• Attention to detail – They follow the trust’s instructions carefully.

• Communication – They keep beneficiaries informed and address concerns.

• Impartiality – They act in the best interests of all beneficiaries.

Professional trustees usually charge an annual fee that typically ranges from 1% to 1.75% of the trust’s value (plus VAT), and this is calculated quarterly. This fee covers routine trust administration and trust management tasks.

However, the cost ultimately depends on the assets held within the trust. For trusts with liquid assets like cash or investments, the fee is usually a percentage of the trust’s value. In some cases, trustees may charge a fixed fee, especially for smaller trusts with simpler administration.

For larger or more complicated trusts, such as those holding commercial properties, trustees may charge based on the time spent managing the trust. There is also usually a minimum fee, which covers basic services like preparing accounts, managing meetings, coordinating with advisers, and handling routine tasks such as processing payments and maintaining records.

To close a trust, the trustee must first transfer all the assets held within the trust and handle any necessary title changes. Once this is done, the trust is effectively closed.

You will need to use the online service designed for closing trusts. Before submitting a closure request, make sure all the trust’s details are up-to-date. If the trust is already registered online, simply request closure.

If the trust hasn’t been registered online yet, the trustee must first claim it before requesting closure. After the closure request is processed, access to the online trust register will be removed.For the complete list of steps on how to close a trust, visit the official online service: HMRC Trust Registration.

Managing a trust sometimes involves making financial decisions to grow or preserve the assets it holds. One way trustees can get the most out of the returns is by placing surplus funds in high-interest savings accounts. These options not only offer a secure place to hold funds but also ensure the money in the trust works harder.

If you want to quickly and easily open a savings account with competitive rates, register for a Raisin UK Account and apply today.