Trusts on the rise as households look to chop tax and move on belongings: How they work and who ought to think about one

The number of people using trusts to manage their money is rising, analysis shows.

According to a Freedom of Information request by RBC Wealth Management, the Trust Registration Service received a flurry of filings last January, the most recent period for which data is available. 

Around 10,000 UK-resident trusts were registered that month, as families looked to protect their assets and ensure they can be passed on to future generations. 

RBC’s Andrea Tarasheva says: ‘The Christmas period, during which many spend time with family, often encourages reflection on long-term financial planning, including the importance of putting appropriate structures in place. 

‘Establishing a trust can be an effective way to protect assets, provide for loved ones in a flexible way, and ensure that wealth is managed and passed on in accordance with one’s wishes for future generations.’

We explain how trusts work, when to use one, and the potential pitfalls to be aware of. 

Why do people set up trusts? 

Trusts are often set up to manage and distribute assets where there is a good reason for not handing them over outright.

Common motives for families doing this are to avoid inheritance tax, give someone an interest in a property for life, or to pass money to individuals too young, vulnerable or untrustworthy to handle it themselves.

Setting up a trust is not a decision to be taken lightly. It can be time-consuming and expensive to establish one, and they can also be costly to close. 

A trust is a legal agreement that allows you to pass on and preserve your assets, including shares, money and property, in a tax-efficient way.

There are several different types of trust, and the right option depends on an individual’s circumstances.

A commonly used type of trust is a discretionary trust which appoints trustees to decide who receives distributions, how much, and when. 

Tarasheva said: ‘As the decision-making power lies with the trustees, there is a degree of control, flexibility and protection which allows adapting to changing circumstances such as family dynamics.

‘By placing assets into trust, an individual can start the process of moving funds outside of their estate while making provisions for family members such as children and grandchildren.

Tarasheva added: ‘When structured appropriately, trusts offer a high level of control and flexibility, allowing people to decide how their wealth is passed on across generations and the timing and recipients of any distributions. 

‘One misconception is that the distribution of assets is tied to turning a certain age. More commonly, distributions are set to take place at certain life moments, such as buying a first home or helping with university fees. 

‘Moreover, trusts can be structured to support both existing and future beneficiaries, making them a valuable mechanism for long-term, intergenerational wealth planning.’

How do trusts work?

Currently, an individual can place up to £325,000 into a discretionary trust every seven years without being subject to inheritance tax, provided this allowance has not already been used.

Trustees then control who receives distributions from the trust and when.

Once the assets are in the trust, any future growth sits outside the estate for inheritance tax purposes.

However, Britons considering establishing a trust as part of their financial planning arrangements need to watch out for upcoming tax and rule changes coming into force later this year. 

Upcoming changes to consider 

Another point to remember is that the laws and tax regime for trusts can change regularly. 

Two key upcoming changes need to be considered by anyone contemplating setting up a UK-resident trust, or by anyone who already has one.

From April 2026, a new cap of £2.5million per person will limit the amount of qualifying property that can be placed into a trust without triggering an upfront inheritance tax charge. So, those with qualifying assets may look to make use of this exemption before the cap comes into effect.

Moreover, the £325,000 nil-rate band has not been increased in line with inflation since 2009, and following the November 2025 Autumn Budget, the freeze on the thresholds will be extended by an extra year to April 2031. 

As a result, more estates could be dragged into the inheritance tax net for the first time, driving increased interest in tax-efficient strategies like lifetime gifting into trusts.

Tarasheva said: ‘Setting up a trust can be complex and it’s important to understand some of the potential limitations. These include periodic and exit tax charges.

‘As always, tax treatment depends on each individual’s circumstances and may be subject to change in the future, so it is important to seek tax and legal advice when considering using a trust structure.’

A trust might need to be closed if it has outlived its usefulness, or the cost and hassle can no longer be justified, or it is found to be unsuitable, or was simply mis-sold to the settlor.