Trusts and Inheritance Tax in 2026: An Essential Overview
Trusts have long been a cornerstone of UK wealth planning. Families use them to protect assets, support future generations and provide structure and governance around long-term wealth.
That role has not disappeared, but the tax environment surrounding trusts has changed significantly.
The past two years have brought some of the most substantial reforms to trust taxation in over a decade. Changes to Inheritance Tax (IHT) reliefs that took effect from 6 April 2026, higher Capital Gains Tax (CGT) rates and the abolition of the long-standing non-dom regime have all added complexity for trustees and settlors alike.
As a result, trusts require more active management and regular review than ever before.
In this article, we outline the key developments and explain why trusts continue to play an important role in private client tax planning.
APR and BPR reforms are now in force
The most significant change for many families is the introduction of the new Inheritance Tax rules for Agricultural Property Relief (APR) and Business Property Relief (BPR), which came into effect on 6 April 2026.
Following consultation and significant lobbying after the October 2024 Budget, the Government increased the original proposed £1 million cap to a combined £2.5 million allowance for qualifying APR and BPR assets.
Under the current rules:
- Individuals have a combined £2.5 million allowance for assets qualifying for 100% APR or BPR.
- Some (but importantly, not all) trusts also benefit from their own £2.5 million allowance.
- Once the allowance is exceeded, qualifying assets generally receive 50% relief rather than 100%.
- The allowance applies across both APR and BPR, meaning farmland, trading businesses and qualifying business assets all count towards the same limit.
Existing trusts: why transitional rules still matter
Although the new regime is now in force, many existing trusts continue to benefit from transitional provisions.
Trusts established before 30 October 2024 generally move into the new regime at their first ten-year anniversary charge occurring on or after 6 April 2026. Until that point, some trusts may still benefit from the previous relief rules, and appointments made before that anniversary may continue to qualify for full relief.
Once that first post-April 2026 anniversary is reached, however:
- Any qualifying value above the trust’s available £2.5 million allowance may become exposed to Inheritance Tax.
- Any excess may be subject to periodic Inheritance Tax charges, potentially at an effective rate of up to 6%.
For many trustees, this makes a review of existing trust structures a priority rather than something that can be deferred.
What trustees should be focusing on now
Although the reforms have taken effect, many trusts have yet to experience their first ten-year anniversary under the new rules. That means there remains an important opportunity to plan ahead.
Trustees should consider:
- Reviewing existing trust structures.
- Modelling future Inheritance Tax exposure.
- Assessing whether appointments or restructuring may be appropriate.
- Ensuring sufficient liquidity is available to meet future tax liabilities.
For many families, this is likely to be the most important trust review undertaken for many years.
Capital Gains Tax
Capital Gains Tax has also changed significantly.
The CGT rate for trustees on most chargeable assets increased to 24% from 30 October 2024, while residential property gains continue to be taxed at 24%. The annual exempt amount for trustees has reduced to just £1,500 and must be shared where multiple trusts have been established by the same settlor.
These changes mean more gains are likely to become taxable, investment portfolios may require more active management, and capital losses have become increasingly valuable as part of effective trust planning.
The non-dom regime has ended
Since April 2025, the UK’s long-standing non-dom regime has been replaced with a residence-based system.
For internationally mobile families, this represents one of the most significant tax changes in recent years.
Exposure to Inheritance Tax is now linked to long-term residence rather than domicile, meaning many historic protections associated with excluded property trusts and protected settlements have been reduced or removed. In some cases, UK-resident settlors may now be taxed on trust income and gains even where no distributions are received.
Trustees and families with international connections should ensure existing structures continue to meet their original objectives.
Trust Registration Service
The Trust Registration Service (TRS) remains one of the key compliance obligations for trustees.
Trustees must continue to:
- Register trusts where required.
- Update trust information within 90 days of any relevant changes.
- Submit annual trust tax returns where applicable and provide beneficiaries with the necessary tax information.
Although HMRC generally focuses penalties on deliberate non-compliance, maintaining accurate TRS records remains an important trustee responsibility.
Why trusts still matter
Despite significant tax reform, trusts continue to play an important role in succession planning.
They remain an effective way to protect family wealth, provide flexibility over distributions, safeguard vulnerable beneficiaries and support long-term family governance.
While the tax landscape has become more complex, trusts remain a valuable planning tool when they are reviewed regularly and managed proactively.
Our final thoughts
The introduction of the new APR and BPR rules marks a significant shift in trust taxation, but it does not diminish the value of trusts themselves.
For many families, now is the right time to review existing arrangements, understand how the reforms affect future tax exposure and ensure trust structures remain aligned with their long-term objectives.
If you would like to discuss how these changes affect your family or your trust arrangements, our Private Client team would be pleased to help.
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