Trusts and Inheritance Tax in 2026: what you need to know

Trusts have long been a cornerstone of UK wealth planning. Families use them to protect assets, support future generations, and introduce structure and governance around long-term wealth.

That role has not disappeared but the tax environment surrounding trusts has changed.

Over the past two years, trustees and settlors have faced some of the biggest tax reforms in a decade. Changes to Inheritance Tax (IHT) reliefs from April 2026, higher Capital Gains Tax (CGT) rates, and the end of the long-standing non-dom regime have all added complexity.

As a result, trusts now require more active management and regular review than ever before.

In this article, Paul Harris, Private Client Tax Partner, outlines the key developments and explains why trusts continue to play an important role in private client tax planning.

The October Budget 2024 introduced sweeping changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) – the most significant reforms to IHT reliefs in many years.

Following widespread concern and months of protests from the farming community, the government increased the originally proposed £1 million  cap on 100% APR/BPR to £2.5 million in December 2025.

The new rules apply from 6 April 2026, although transitional provisions mean some existing trusts retain access to historic relief treatment (as explained later in this article).

From April 2026:

• Each individual has a £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, any additional qualifying assets receive only 50% relief rather than 100%.

The allowance applies across both APR and BPR. This means farmland, trading businesses, and certain shareholdings all count towards the same cap.

Trusts created before 30 October 2024 move into the new regime at their first 10-year anniversary charge (TYC) falling on or after 6 April 2026.

Until then, many existing trusts may still benefit from the historic 100% relief and appointments made before the first post 2026 anniversary may still qualify in full.

However, once that anniversary is reached:

• Any value above the trust’s own £2.5 million allowance may be exposed to IHT. and
• Any excess may become subject to periodic IHT charges, potentially at an effective rate of up to 6%.

For trustees, this creates a clear window for review and planning.

Trusts established after 29 October 2024 are subject to the new rules from the outset.

To prevent “fragmentation” planning, the government introduced rules that divide the allowance where a settlor creates multiple trusts on or after Budget Day 2024.

From April 2026, AIM-listed shares and certain qualifying EIS investments no longer qualify for 100% BPR.

Instead, relief is limited to 50%, regardless of the available allowance position.

This represents a significant change for trusts holding diversified investment portfolios, particularly those that have historically used AIM and qualifying EIS investments as part of inheritance tax (IHT) mitigation strategies.

Although the reforms are already in force, many trusts will not feel their full impact until their next 10-year anniversary. That makes forward planning essential.

Trustees should now consider:

• Reviewing existing trust structures.
• Modelling future IHT exposure.
• Assessing whether appointments or restructuring may be appropriate.
• Ensuring sufficient liquidity is available to meet future tax liabilities.

For many families, this may be the most important trust review they undertake in years.

CGT has also seen notable changes.

Key changes:

• From 30 October 2024, the CGT rate for trustees on most assets increased from 20% to 24%.
• Residential property gains remain taxed at 24%, following the Spring Budget 2024 reduction from 28%.
• The annual exempt amount (AEA) for trustees has reduced to just £1,500.
• Where a settlor has created multiple trusts, the allowance must be shared.

What these changes mean for trustees:

• More gains are likely to fall into charge.
• Investment portfolios may require more active management.
• Capital losses have become increasingly valuable and should be carefully tracked and used strategically.

While the rate increases are relatively modest, they reinforce the importance of planning disposals carefully and monitoring trust investments closely.

April 2025 marked the end of the long-standing non-dom regime, which has now been replaced with a residence-based system.

This is a major shift for internationally mobile families and trusts with non-UK settlors.

The remittance basis has been abolished, although new arrivals may benefit from a four-year regime under which foreign income and gains are not taxed.

A Temporary Repatriation Facility also allows historic foreign income and gains to be brought to the UK at reduced tax rates until 5 April 2028.

Importantly, exposure to IHT is now linked to long-term residence rather than domicile. As a result many of the historic protections associated with excluded property trusts and protected settlements have been significantly narrowed or removed.

In some cases, UK-resident settlors may now be taxed on trust income and gains even where no distributions are received.

Families affected by these changes should review existing trust structures carefully to ensure they still achieve the intended objectives.

The Trust Registration Service remains one of the most important compliance obligations for trustees.

Trustees must:

• Register all UK express trusts (unless exempt), and certain non-UK trusts where registration conditions are met within 90 days of creation.
• Update the register within 90 days of changes to trustees, beneficiaries, settlors, or trust details.
• Continue to file annual trust tax returns and issue tax certificates to beneficiaries.

While HMRC penalties tend to focus on deliberate non-compliance, trustees are still expected to keep the TRS fully up to date.

For many trustees, this is an area where professional support can add significant value.

Given the scale of recent changes, many families are asking whether trusts are still worthwhile.

In our view, the answer remains a clear “yes”.

Trusts continue to provide:

• Effective asset protection, particularly where beneficiaries are vulnerable or family circumstances are complex.
• Flexibility around the timing of distributions and gains, even within a tighter tax framework.
• Long-term succession planning opportunities.

Perhaps most importantly, trusts offer continuity and governance. They provide a framework that can evolve over time, helping families adapt to changing circumstances with the right professional advice.

Recent reforms place greater responsibility on trustees to act proactively.

Key priorities now include:

• Reviewing exposure to the new APR/BPR cap.
• Reassessing structures following the non-dom changes.
• Monitoring CGT exposure.
• Ensuring ongoing TRS compliance.

Trusts holding business or agricultural assets, or those connected to international family structures should seek specialist advice sooner rather than later.

The past two years have brought major changes to trust taxation, but they have not reduced the value of trusts themselves.

Trusts continue to offer a powerful combination of asset protection, tax efficiency, and long-term family stewardship. With thoughtful review and timely action, they are likely to remain central to many families’ wealth strategies for years to come.

If you would like to explore what these changes mean for you or your family, our private client team would be happy to help. Get in touch with your local business champion today.