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Trust Law/Level VIII · Trusts of the world/8.1 Common-law systems/Lesson 2

United Kingdom: trusts after the Trustee Act 2000

The main statutes behind trusts in England and Wales today, on trustee duties and powers, land, perpetuities, inheritance tax and registration, with a note on Scotland.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. A bare trust keeps income tax with the beneficiary, who can use their own Personal Allowance. Catch: an express bare trust generally still registers on HMRC’s Trust Registration Service, and income from a parent’s trust for their own minor child is the parent’s responsibility.
  2. Settle a discretionary trust within the £325,000 nil-rate band, plus the £3,000 annual exemption, to avoid the 20% lifetime entry charge; 10-year and exit charges never exceed an effective 6%. Catch: transfers cumulate over 7 years, and death within 7 years recomputes at 40%.
  3. Small trusts pay no income tax on income up to £500, cut to a £100 minimum each when a settlor has 5 or more trusts. Catch: above it discretionary trusts pay 45%, or 39.35% on dividends, and settlor-interested trust income is the settlor’s tax.
  4. The lead trustee can register on HMRC’s Trust Registration Service directly, without an agent, within 90 days of creation or first tax liability. Catch: failure risks a £5,000 penalty, changes must be reported within 90 days, and taxable trusts confirm details every 31 January.
  5. The register is not public: HMRC releases trust data only on a legitimate-interest request tied to a money-laundering or terrorist-financing investigation, or an offshore-company request. Catch: privacy is from the public only; HMRC itself holds the full data and trustees’ tax returns still apply.

MaterialsThe Trustee Act 2000, especially sections 1, 3 to 5, 11, 23 and 28 to 29, free on legislation.gov.ukHMRC’s guidance ‘Trusts and Inheritance Tax’ on GOV.UK, including its sections on relevant property and the 10-year anniversary chargeLesson 5.3.3, on the rule against perpetuities, and lesson 6.3.7, on trust registers, for background

Wonder

  1. What standard of care does English law expect of a lay trustee compared with a professional one?
  2. Which trustee powers come from statute when the trust deed says nothing?
  3. Why does Scotland have its own trust statutes?

Explore

  1. In England and Wales, trust law is largely judge-made, but statutes supply default rules that apply unless the trust instrument says otherwise. The Trustee Act 1925 still provides many everyday powers, such as maintenance for minors (s.31), advancement of capital (s.32), appointing new trustees (s.36) and the court’s power to relieve a trustee who acted honestly and reasonably (s.61). The Trustee Act 2000, which came into force on 1 February 2001 after a 1999 Law Commission report, modernised the rules on care, investment, delegation and pay. Scotland has a separate system. This lesson surveys the rules and does not recommend any structure.
  2. Section 1 of the Trustee Act 2000 sets a statutory duty of care. A trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience the trustee has or claims to have and, for a trustee acting in the course of a business or profession, to the special knowledge or experience reasonably expected of someone in that kind of business or profession. The standard is therefore higher for professionals and experts than for lay trustees. The duty applies to the functions listed in Schedule 1, such as investing and appointing agents, and the trust instrument can exclude it.
  3. Section 3 gives trustees a ‘general power of investment’: they may make any kind of investment they could make if they were absolutely entitled to the trust assets, subject to the trust instrument. It replaced the narrower lists of the Trustee Investments Act 1961. The general power does not cover buying land, apart from loans secured on land; section 8 separately allows trustees to acquire freehold or leasehold land in the United Kingdom. Section 4 requires trustees to consider the ‘standard investment criteria’, namely suitability and the need for diversification, and to review investments from time to time. Section 5 requires them to obtain and consider proper advice unless they reasonably conclude it is unnecessary.
  4. Trustees may collectively appoint agents for ‘delegable functions’ (s.11), which exclude, for example, decisions about distributing trust assets, and may appoint nominees and custodians (ss.16-17). Delegating asset management requires a written policy statement (s.15). Under s.23, a trustee is not liable for an agent’s default unless the trustee failed to meet the duty of care in appointing or reviewing the agent. On pay, s.28 lets a professional trustee be paid under a charging clause even for work a lay trustee could do. If the instrument is silent, s.29 entitles a trust corporation (other than for a charitable trust) to reasonable remuneration, and an individual professional trustee only if each other trustee agrees in writing; it gives a sole trustee no such right.
  5. The Trusts of Land and Appointment of Trustees Act 1996, in force from 1 January 1997, replaced strict settlements and the old trust for sale with a single ‘trust of land’. Trustees of land have the powers of an absolute owner (s.6), must so far as practicable consult adult beneficiaries entitled to an interest in possession (s.11), and such beneficiaries may have a right to occupy (s.12). A person with an interest can ask the court for an order, for example about a sale (s.14), and adult beneficiaries who together are absolutely entitled can direct trustees to retire or appoint new ones (s.19). The Perpetuities and Accumulations Act 2009 set a single fixed perpetuity period of 125 years for most instruments taking effect from 6 April 2010.
  6. For UK inheritance tax, most property held in trust is ‘relevant property’; exceptions include interest in possession trusts created before 22 March 2006 and certain trusts for disabled people and bereaved minors. Relevant property can face exit charges and a charge at each 10-year anniversary on its net value above the available nil-rate band, at an effective rate of at most 6%. Separately, trustees of most UK express trusts must register with HMRC’s Trust Registration Service, even if no tax is due. Scotland has its own trust law: the Trusts and Succession (Scotland) Act 2024 received Royal Assent on 30 January 2024 and is to replace most of the Trusts (Scotland) Act 1921, but its trust provisions are being brought into force in stages, so legislation.gov.uk should be checked for the current position.

Key facts

  • In England and Wales, the Trustee Act 2000 came into force on 1 February 2001; the Trustee Act 1925 still supplies many default powers.
  • Trustee Act 2000 s.1 requires the care and skill reasonable in the circumstances, with a higher standard for trustees with special knowledge or acting professionally.
  • Trustee Act 2000 s.3 lets trustees make any investment they could make if absolutely entitled; ss.4-5 require regard to suitability and diversification, and proper advice.
  • Under Trustee Act 2000 s.29, a trust corporation (except for a charitable trust) is entitled to reasonable pay if the instrument is silent; an individual professional trustee needs the other trustees’ written agreement.
  • The Perpetuities and Accumulations Act 2009 set a 125-year perpetuity period for most instruments taking effect from 6 April 2010.
  • UK relevant property trusts can face inheritance tax at each 10-year anniversary at an effective rate of at most 6%; most UK express trusts must register with HMRC’s Trust Registration Service.

Exercise nine, six, three, one

9CollectList up to 9 rules described in this lesson or in a trust instrument governed by English law that you are reading (some sources give fewer), such as an investment power, a power to appoint agents, a charging clause or a perpetuity period.
6ClusterSort them into 6 categories: duty of care, investment, delegation, remuneration, land and duration, and tax or registration.
3DistillReduce the 6 categories to 3 groups: rules that apply by default from statute, rules a trust instrument can change, and rules set by tax or registration law.
1CrystallizeWrite 1 sentence explaining, in your own words, why the Trustee Act 2000 expects more of a professional trustee than of a lay trustee.

Fact check

Dates, figures and claims checked against the published sources listed below.

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