Trusts and tax

Inheritance Tax planning

Traditionally, many unlisted trading companies qualified for 100% business relief, and IHT was not a major concern, as this relief reduced their IHT value to nil, and any shares held in an estate received a “tax free” probate value uplift for CGT purposes.

However, from 6 April 2026, a cap on relief at 100% has been introduced on up to £2.5 million of assets (£5 million where a transferable allowance from a spouse is available), with anything above that level reduced by only 50%. Any trading company shares listed on AIM also have relief capped at 50%, irrespective of their value.

Trusts can have their own £2.5 million allowance, and companies with surplus cash, investments, or which are potentially going to be sold or liquidated, can be dragged into the IHT net at 40%. Therefore, transferring shares into Trust not only banks the business relief at the time of transfer, but also freezes the value of the shares at that time, which will be relevant if values are expected to increase.

• For example, consider a family member holding 20% of a trading company which may be sold over the next few years. The undiscounted value of their shares might be £2.5 million, but with a minority discount, these shares might be valued at £1,250,000. IHT is not an immediate issue as business relief applies (even up to the £2.5 million limit), but if the shares are sold for cash, a 40% exposure on the full value arises immediately because the minority discount is lost, and the cash does not qualify for business relief.
• Instead, the shares might be transferred into a Trust before a sale. The transfer benefits from business relief (BR) therefore avoiding any immediate lifetime IHT (depending on quantum and timing). It also freezes the value in the transferor’s estate at the discounted value. If a sale is delayed, the shares could remain in Trust continuing to benefit from business relief.

Capital Gains tax planning

Trusts can also benefit from Business Asset Disposal Relief if there is a qualifying beneficiary with a life interest in the Trust. This can enable the Trustees to benefit from a reduced rate of capital gains tax of 18% on a qualifying disposal. This rate is below the main rate of capital gains tax, which is currently 24%.

Asset protection

Once the shares are in Trust they are more easily kept out of the reach of any perceived hot-headed beneficiaries, creditors, or a marital breakup. The Trustees, with discretion, can exercise complete control over who gets what. This could be a good incentive to keep family members on track.

Downsides

The main perceived downsides of Trusts are complexity, cost, and the potential for conflict if beneficiaries feel they are not being treated fairly.

In practice, and in the right circumstances, the tax savings can significantly outweigh the costs. Complexity can be kept to a minimum by setting up a structure that can be managed within the family without significant external involvement (e.g. by mandating income to beneficiaries and keeping Trustees within the family).

The fairness issue is ultimately a question for the Trustees, but with openness and the backing of a Family Charter or council, there is no reason why a Trust should be any more disadvantageous than a direct shareholding.

Next steps

Setting up a Trust does need professional advice, and there are potential tax charges to consider, many of which are negated in the family and owner managed business environment with the correct claims. Where they don’t work, families might consider a Family Investment Company (FIC) or partnership as an alternative. You can read more about Trusts tax implications and Family Investment Companies in our insights.

Please get in touch with or your usual Crowe contact to discuss Trust planning further.