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Personal tax, Personal Taxation

Trusts in 2025: Still a Viable Option for Wealth and Estate Planning?

RJP LLP By RJP LLP
Trusts in 2025: Still a Viable Option for Wealth and Estate Planning?

Trusts have traditionally played a central role in UK wealth and estate planning. However, with increased HMRC scrutiny, tightening tax rules, and mandatory trust registration requirements, many families are questioning whether trusts remain worthwhile in 2025.

The short answer is: yes — but only with careful planning. Trusts still offer significant benefits for those looking to manage wealth across generations, protect assets, or plan for inheritance tax (IHT). In this article, we’ll explore the current trust landscape, when trusts make sense, and how they can support income tax planning for grandchildren.

What is a Trust and Why Use One?

A trust is a legal arrangement that allows assets to be held by trustees on behalf of beneficiaries. Trusts allow for greater control over how and when wealth is passed on. They are commonly used to:

• Structure inheritance for young or vulnerable beneficiaries
• Safeguard assets from divorce, bankruptcy, or mismanagement
• Ensure family wealth is retained and distributed according to long-term goals
• Manage exposure to IHT and other personal taxes

Despite added complexity, trusts remain one of the most flexible estate planning tools available.

The Tax Landscape for Trusts in 2025

Over the last decade, changes in tax law and reporting have made trust planning more involved. In 2025, key tax considerations include:

• Inheritance Tax (IHT): Most lifetime trusts are subject to a 20% entry charge above the nil rate band, 10-year anniversary charges, and exit charges.
• Income Tax: Trust income is typically taxed at the additional rate (currently 39.35% for dividends and 45% for other income), unless distributed to beneficiaries.
• Capital Gains Tax (CGT): Trusts receive a reduced annual exemption (£1,500 in most cases), but holdover relief can help avoid immediate charges in some transfers.
• Registration Requirements: Most trusts must be registered with HMRC’s Trust Registration Service (TRS), even if no tax is due, to meet anti-money laundering rules.

While these factors add compliance costs, they do not necessarily make trusts unsuitable — particularly when used with a clear, long-term objective.

Income Tax Planning for Grandchildren

One area where trusts remain especially effective is in income tax planning for grandchildren. Key reasons include:

• No parental settlement rules: Unlike parents, grandparents can gift income-producing assets into trust for minor grandchildren without triggering the parental settlement anti-avoidance rules.
• Use of personal allowances: Discretionary trusts can distribute income to grandchildren, potentially using their personal allowances and basic rate bands, especially if they are non-taxpayers or students.
• University and education funding: Trusts can fund school or university fees in a controlled and tax-efficient way, helping families provide support without large upfront gifts.
• Long-term control: Accumulation and distribution trusts can retain income until grandchildren reach a specified age, offering both tax deferral and future security.

These strategies are particularly attractive for families looking to provide structured financial support to future generations while minimising unnecessary tax.

Is a Trust Right for You?

The suitability of a trust depends on your family, financial goals, and tax exposure. You may want to consider a trust if:
• You want to pass wealth to children or grandchildren while maintaining control
• You are concerned about IHT or future care costs
• You have specific wishes about how wealth should be used
• You want to support grandchildren in a tax-efficient way

RJP LLP regularly works with families, entrepreneurs, and trustees to structure trusts that balance long-term control with practical tax management.

How RJP LLP Can Help

Our private client team offers a full range of services for individuals considering trust planning, including:
• Inheritance tax and wealth transfer planning
• Trust structuring and liaison with legal advisers
• Income and CGT optimisation
• Trust Registration Service compliance
• Ongoing tax reporting and advice for trustees

Whether you are setting up a new trust or need a review of existing arrangements, we offer clear advice tailored to your family’s needs.

Start Planning Today

Trusts remain a viable and valuable tool in 2025 — particularly when used to plan for future generations. If you’re thinking about gifting, succession, or asset protection, now is the time to review your estate plan.

Contact RJP LLP today for a confidential conversation about how trusts could support your long-term goals.

Email: partners@rjp.co.uk
Call: 020 8290 0088

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