A common assumption is that, once the trust is running and the trustees are in charge, the company that created it can forget about the tax that follows. A recent tribunal decision shows that this can be an expensive mistake, and it is worth understanding why before you are caught out.
How trusts are taxed
Putting assets into a trust does not take them outside inheritance tax (IHT). The Inheritance Tax Act (IHTA) 1984 specifically addresses IHT, trust regimes, the ten-year "periodic charge", and the settlor liability rules. Many Employee Benefit Trusts (EBTs), remuneration trusts, and share incentive trusts face a charge on the value they hold, known as the "periodic charge", which is, in effect, the price of keeping wealth within a protected trust structure rather than it being extracted and taxed under ordinary regimes. The people normally responsible for paying that charge are the trustees, who hold and manage the assets.
There is, however, a fallback. Where the trustees are based outside the UK and the tax goes unpaid, HMRC can look instead to the "settlor" – the person, or company, that set the trust up in the first place. However, this is a secondary route and only opens once the trustees have failed to pay tax that was properly due.
Are companies really out of reach?
Because the legislation was plainly written with individuals in mind, corporate settlors have often assumed the fallback cannot reach them. The relevant provision refers to transfers made "during the life of the settlor," and IHT is charged, at its core, on transfers made by an "individual". A company, so the argument runs, has no "life" and is thus not an individual and so should sit outside these rules altogether.
This imagined immunity conferred by the “meaning of life” loophole was recently tested and rejected. A company had set up a trust with trustees in Jersey and, when a ten-year charge went unpaid, HMRC pursued the company as settlor, and the Upper Tribunal held it liable.
The reasoning is worth following, because it applies well beyond the facts of the case. In the legal lexicon, the term "settlor" is defined as any "person," and in law a "person" includes a company unless Parliament says otherwise. The word "life", the Tribunal held, can just as easily describe the period for which a company exists as it does a human lifetime, and the rule that IHT catches transfers by "individuals" governs only the Act's main charges — trusts are dealt with under a separate regime, brought into tax by wording that is not limited to individuals. Above all, the purpose of the fallback is to prevent tax from going uncollected when trustees sit beyond the UK's reach; reading it to let companies escape would open a fissure in the revenues that Parliament never intended. A change to the law in 2025 through the Finance Act now puts the point beyond doubt, treating a corporate settlor as "alive" for as long as the company exists.
What does this mean if your company has settled a trust?
The practical message is that a company cannot assume it is insulated simply because it is not a person. If a business sets up a trust whose trustees are outside the UK, it may be pursued for an unpaid periodic charge for as long as it remains in existence, potentially for a trust created and then largely forgotten years ago.
However, that exposure should be kept in proportion, as it is a secondary liability and not a primary one. In the ordinary case, where offshore trustees pay the tax when it falls due, the company is never troubled. The risk only crystallises when they do not.
Implications:
- Companies can no longer use the literal interpretation of wording meant for individuals to escape trust-related IHT.
- Any business that has previously funded a trust—even one created long ago and largely forgotten—bears a live, ongoing financial liability for as long as the company exists.
- The ruling specifically exposes corporate settlors who use non-UK or offshore trustees, and if those trustees default on tax payments, HMRC will aggressively pursue the UK company for the debt.
- Companies must proactively audit their history to identify past trust structures, verify that ten-yearly periodic charges are being paid on time by trustees, and monitor this secondary exposure continually.
The sensible precaution is to know your history. Any business with any trust in its background should identify whether the trustees are non-UK resident, check that ten-yearly charges are being paid on time, and treat the company's fallback liability as a live risk and one to keep under constant review. The obligations of a settlor were never intended to be written for individuals alone, and a company that set up a trust long ago may still bear responsibilities it has long since quietly forgotten.
Disclaimer: “This is an abridged summary of a UK legal case, simplified to make it accessible to a lay audience. In simplifying it, some key legal principles and points of detail may have been omitted or may not be fully reflected. The decision discussed may not be final and could be open to appeal or challenge, and the law may have changed since this summary was written. This summary is provided for general information only. It is not legal (or tax) advice, and it should not be relied upon as complete or wholly accurate. Readers should consult the full judgement and take professional advice on their own circumstances.”