What Are Trusts? A Clear UK Guide for Families and Business Owners

Trusts are legal arrangements used to hold and manage assets for the benefit of others. They are commonly used in estate planning, family wealth structuring, and business succession, particularly where long-term control, protection, or clarity is required.

This guide explains what a trust is, how trusts work in the UK, the main types of trusts, why people use them, the risks and obligations involved, and how professional support can help ensure trusts are set up and managed correctly.

What Is a Trust?

A trust is a legal arrangement where one person (the settlor) places assets under the control of one or more trustees, who manage those assets for the benefit of one or more beneficiaries.
A trust separates:

Legal ownership (held by trustees)
Beneficial ownership (enjoyed by beneficiaries)

The rules governing the trust are set out in a trust deed, which explains how the trust operates, what powers trustees have, and how assets may be used or distributed.

How Does a Trust Work?

When a trust is created:

The settlor transfers assets into the trust
Trustees take legal responsibility for managing those assets
Beneficiaries receive income or capital in line with the trust deed

Trustees must act in the best interests of the beneficiaries and comply with their fiduciary duties. This includes acting prudently, keeping records, and following the trust terms precisely.
Assets commonly held in trusts include cash, investments, property, shares, and business interests.

Why Do People Set Up Trusts?

Trusts are used for a wide range of personal and commercial reasons, including:

Controlling how and when assets are distributed
Protecting children or vulnerable beneficiaries
Supporting estate and will planning
Reducing family disputes through clear instructions
Managing business succession and continuity
Providing structured asset management over time

Trusts are not one-size-fits-all solutions. Their effectiveness depends on clear objectives and correct structuring.

Main Types of Trusts in the UK

Bare Trust

In a bare trust, the beneficiary has an absolute right to the trust assets and income once they reach the relevant age. Trustees hold assets on behalf of the beneficiary but have limited discretion.
This structure is often used to hold assets for children until adulthood.

Discretionary Trust

In a discretionary trust, trustees decide how and when beneficiaries receive income or capital. Beneficiaries do not have automatic entitlement.
This type of trust offers flexibility and is often used in family planning where circumstances may change over time.

Interest in Possession Trust

An interest in possession trust gives a beneficiary the right to income from trust assets, while capital may pass to another beneficiary at a later date.
This structure is frequently used in wills, for example where a spouse receives income for life and children inherit later.

Trusts Created by a Will

Some trusts are created through a will and only take effect after death. These trusts allow assets to be managed for beneficiaries over time rather than distributed immediately.

Trusts vs Wills vs Gifts

Trusts differ from wills and gifts in important ways.
A will sets out instructions that apply after death. A gift transfers ownership immediately with limited ongoing control. A trust allows assets to be managed over time under specific rules.
Trusts are often chosen where ongoing oversight, protection, or flexibility is required.

Do Trusts Need to Be Registered in the UK?

Many trusts must be registered with HMRC through the Trust Registration Service (TRS), even if they do not generate tax.
Trusts commonly required to register include:

Trusts liable to UK tax
Certain non-taxable express trusts
Some non-UK trusts with UK connections

Failure to register when required can lead to penalties and compliance issues. The registration rules are detailed, so professional guidance is often advisable.

How Are Trusts Taxed in the UK?

Trust taxation depends on the type of trust and the assets involved. In general, trusts may be subject to:

Income tax on trust income
Capital gains tax on disposals of trust assets
Inheritance tax in certain circumstances

Tax treatment can vary significantly depending on trust structure, residency, and distributions made. Incorrect assumptions about trust tax treatment often lead to unexpected liabilities.

What Are the Risks or Downsides of Trusts?

While trusts offer flexibility and control, they also involve responsibilities:

Administrative and record-keeping obligations
Ongoing compliance and reporting requirements
Setup and professional costs
Potential tax complexity if structured incorrectly

Trusts should be created with a clear purpose and reviewed regularly to remain effective.

How to Set Up a Trust

Setting up a trust typically involves:

Defining your objectives
Selecting the appropriate trust type
Choosing suitable trustees
Drafting a trust deed or including trust terms in a will
Registering the trust with HMRC where required
Managing the trust on an ongoing basis

Professional input helps ensure the trust is compliant and aligned with your broader financial and estate planning.

Trusts for Business Owners and International Families

Trusts are often used by:

Business owners managing shareholdings or succession
Families with assets in multiple jurisdictions
Individuals seeking structured long-term planning

Cross-border trusts introduce additional tax and reporting considerations, making coordinated legal and tax advice particularly valuable.

How Persona Finance Can Help with Trusts

Persona Finance supports individuals and businesses with trust-related planning and compliance by:

Advising on suitable trust structures
Supporting HMRC trust registration requirements
Coordinating tax and accounting considerations
Working alongside legal advisers to ensure consistency

We help ensure trusts are not only legally valid but also practical, compliant, and aligned with your financial objectives.

Frequently Asked Questions About Trusts

What is the difference between a trust and a trust fund?
A trust is the legal structure, while the trust fund refers to the assets held within it.
Do I lose control of assets in a trust?
Trustees control the assets, but the trust deed determines how they are managed and used.
Can I be a trustee of my own trust?
Yes, although trustees must comply with strict duties and act in the beneficiaries’ interests.
Are trusts only for wealthy individuals?
No. Trusts can be appropriate for a wide range of planning needs, provided they are used correctly.

Next Steps

Trusts can be valuable tools, but only when they are set up and managed properly. If you are considering a trust or already have one in place, Persona Finance can help you review your position, meet compliance requirements, and align trust planning with your wider financial goals.

👉 Speak with our team for clear, practical support with trusts and related compliance.