Thinking of putting your property into a Trust? It could help with inheritance planning or family protection — but it’s not always the tax-saving shortcut people expect.
Here’s what you need to know before you transfer any property into a Trust.
🎥 Watch the Video: How Trusts Work for Property Tax (UK)
Prefer to watch? This video explains how trusts impact CGT, IHT, and when they work best for landlords and property owners. Video coming on 7th September 2025
What Is a Trust?
A Trust is a legal arrangement where you give assets (like property) to someone else (the Trustees) to manage for the benefit of others (the Beneficiaries).
You (the person creating the trust) are known as the Settlor. You can also be a Trustee, but once the property is in the Trust, it’s no longer yours — legally or for tax purposes.
Trusts are often used to:
- Pass on property in a structured way
- Protect assets for children or vulnerable family members
- Manage family wealth over time
Why People Use Trusts for Property
Property owners, especially Landlords, sometimes use Trusts to:
- Control who benefits from the property after they die
- Avoid probate delays and costs
- Protect assets from divorce or creditors
- Support adult children without giving them full control
But Trusts come with their own tax and admin rules. Getting it wrong can trigger large tax bills.
If you’re not sure how CGT works on property sales, read our breakdown here
Capital Gains Tax (CGT) When Transferring Property into a Trust
Putting a property into a Trust is a disposal for tax purposes — even if no money changes hands.
That means you could face a Capital Gains Tax bill based on:
- The current market value of the property
- Minus your original purchase cost and allowable expenses
Example:
You bought a rental flat for £150,000. It’s now worth £300,000.
You transfer it into a Discretionary Trust.
➡️ HMRC sees this as a gain of £150,000.
You can apply for Hold-Over Relief to delay the tax, but it’s not guaranteed, and only available in certain Trust types.
Inheritance Tax (IHT) When Using Trusts
Most lifetime transfers into Trust are Chargeable Lifetime Transfers.
That means:
- You may face an immediate 20% Inheritance Tax charge on the amount above your Nil Rate Band (£325,000)
- If you die within 7 years, more tax could be due
Example:
You transfer a property worth £500,000 into a Trust.
£500,000 – £325,000 = £175,000 chargeable.
20% IHT on £175,000 = £35,000 due within 6 months.
Some Trusts (like Bare Trusts or those set up in your Will) follow different rules, but Discretionary and Interest-in-Possession Trusts trigger this charge.
Ongoing Admin: Trust Registration & Reporting
If you set up a Trust, there are legal and reporting duties:
- Register with HMRC’s Trust Registration Service (TRS)
- Submit annual Trust Tax Returns if the Trust earns income
- Keep Trust records and accounts up to date
This isn’t a one-off task — it’s ongoing.
When a Trust Can Work for Property
Trusts can be effective when:
- You want to delay full ownership for young or vulnerable beneficiaries
- You need control and structure over how property is passed on
- You’re managing a large estate and want to plan ahead
But if your main goal is to avoid tax — a Trust might not help.
Final Thoughts
Don’t move property into a Trust just because you heard it’s Tax-free — it’s not.
The CGT and IHT charges can be significant, and the admin requirements are strict.
📞 Book a clarity call if you’re thinking of using a Trust for your home or rental property, we’ll help you decide if it’s the right fit, or if there’s a simpler route.
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