The Autumn Budget’s significance for trustees goes beyond a change in headline rates. It combines proposed higher taxation of savings and property income with targeted inheritance-tax and capital-gains measures affecting trust structures. The immediate priority is to distinguish changes announced in October 2026 from reforms already scheduled under earlier Budgets.
Trust Income: a more expensive environment
From 6 April 2027, the UK Government proposes to increase the income tax rates applicable to savings income (such as interest earned) to 24%, 44% and 49%, and to introduce corresponding rates for property income. These represent the basic, higher and additional rates of Income Tax applicable to individuals. Trusts are also subject to UK Income Tax, although the applicable rates depend on the type of trust. In particular, discretionary and accumulation and maintenance trusts are generally taxed at the highest applicable rates on accumulated or discretionary income, rather than through the progressive tax bands applicable to individuals.
The proposed increase in savings income tax rates will apply throughout the United Kingdom, while the new property income tax rates will apply in England, Wales and Northern Ireland. Wales is therefore included, although both Wales and Scotland retain their respective devolved tax-setting powers.
For discretionary trusts subject to the trust rate of income tax, interest and rental income may therefore be taxed at 49%, compared with the current 45%, subject to the applicable trust taxation rules, available reliefs and the final legislative provisions. Dividend income, however, remains subject to a separate tax regime and should not be assumed to attract the new 49% rate.
This distinction is particularly relevant for trusts holding diversified portfolios comprising bank deposits, bonds, rental properties and equities. Trustees should therefore assess the tax implications of each income category separately, rather than applying a uniform tax rate across all sources of income.
The overall financial impact will also depend on the deductibility of expenses, the trust's specific tax circumstances and the tax treatment of income subsequently distributed to beneficiaries.
Distributions, beneficiaries and the tax pool
Discretionary distributions may carry a tax credit, supported by the trust’s tax pool. Changes to the tax paid on retained income can therefore affect the administration and timing of beneficiary payments, while the beneficiary’s own tax circumstances may determine whether further tax or a repayment arises. A distribution should not be accelerated solely because a higher rate has been announced: trustees must consider the trust deed, fiduciary duties, liquidity and the interests of different beneficiaries.
Inheritance tax: two targeted trust measures
The Budget proposes a specific anti-avoidance and valuation measure for liabilities associated with settled property. The legislation will provide a statutory rule for taking liabilities properly incurred by trustees into account when valuing settled property for inheritance tax purposes, align their treatment with personal liabilities and extend existing debt deduction restrictions and anti-avoidance rules to ensure that certain liabilities funded using value originating from a beneficiary’s own estate cannot reduce inheritance tax charges. The announced application is to deaths and other chargeable events on or after 28 October 2026, subject to legislation.
The existing ‘relevant-property regime’, including potential ten-year anniversary and exit charges, remains central to trust planning. These are existing inheritance tax charges that may arise every ten years on trust assets (at rates of up to 6%) or when assets leave the trust, respectively. Previous changes to agricultural and business property relief must be assessed separately: they are not new announcements of this Budget.
Temporary migration and capital gains
A further measure offers a narrow administrative easement from the Capital Gains Tax ‘exit charge’ where a trust becomes UK-resident because one of its trustees moved to the UK and it ceases to be UK resident later in that tax year or the following one. This will take effect from 28 October 2026. This is not a general exemption for offshore trusts or all changes of residence; the precise conditions require careful review.
The practical response
Trustees should map income sources for 2027–28, stress-test tax reserves and beneficiary distributions, review the treatment of liabilities and cross-border residence, and confirm registration and reporting duties. For property-rich or internationally administered trusts, coordinated UK tax and legal advice is especially important. The Budget is a reason for a focused review—not an automatic instruction to restructure.
Sources:
- HMRC Budget 2026 Overview of Tax Legislation and Rates (OOTLAR), §§1.1–1.2 and 1.26–1.28 (28 October 2026): https://www.gov.uk/government/publications/budget-2026-overview-of-tax-legislation-and-rates-ootlar/budget-2026-overview-of-tax-legislation-and-rates-ootlar.
- HMRC, Annex A: Rates and Allowances: https://www.gov.uk/government/publications/budget-2026-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances.
Proposed measures remain subject to legislative detail. General information, not legal or tax advice.
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The information provided in this article is of a purely general nature and is not a substitute for specific advice that may be requested here.
