An accumulation and maintenance trust set up before 22 March 2006 keeps its special Inheritance Tax treatment under section 71 of the Inheritance Tax Act 1984 only if it has met the conditions without a break since then, including, from 6 April 2008, that beneficiaries take the capital outright by 18. Trusts that did not meet the 2008 rule became 18 to 25 trusts, stayed as interest in possession trusts or fell into the relevant property regime with ten year and exit charges. For Income Tax, any income still being accumulated is taxed at the trust rates of 45% and 39.35% for 2026 to 2027.

What made a trust an accumulation and maintenance trust?

The label in the deed is irrelevant. HMRC’s Inheritance Tax Manual at IHTM42807 says the only question is whether the trust satisfies section 71. As originally framed, the conditions were that:

  • one or more beneficiaries would, on or before a specified age not exceeding 25, become entitled to the property or to an interest in possession in it;
  • no interest in possession existed, and income not applied for a beneficiary’s maintenance, education or benefit was accumulated; and
  • either no more than 25 years had passed since the settlement began, or all the beneficiaries were grandchildren of a common grandparent (or the children, widows, widowers or surviving civil partners of grandchildren who died before vesting).

Section 71(7) treats unborn persons as possible beneficiaries but requires there to be, or to have been, a living beneficiary. IHTM42807 adds that “will” in the first condition means a beneficiary must inevitably take if they meet the contingency; a hope is not enough.

Section 31 of the Trustee Act 1925 often decides how these trusts work in England and Wales. Where the trust carries the intermediate income and the deed does not exclude section 31, the trustees must pay income to a beneficiary from 18, giving them an interest in possession even if capital is deferred.

What changed in 2006 and 2008?

Finance Act 2006 inserted section 71(1A). Section 71 applies at any time after 22 March 2006 only if it applied to the property immediately before that date and has applied at all times since. No new trust can qualify, and a trust that drops out cannot re enter.

Schedule 20 to Finance Act 2006 then changed the age condition. From 6 April 2008 section 71(1)(a) requires beneficiaries to become entitled to the property itself by a specified age not exceeding 18; the alternative of an interest in possession was removed. IHTM42808 says trustees had until 6 April 2008 to alter the terms, if they had the power, or to convert to a bereaved minor trust or an 18 to 25 trust.

Which regime applies to my trust now?

IHTM42808 sets out what happened to trusts whose terms were not changed:

Position at 6 April 2008 Treatment now
Beneficiary already had an interest in possession at 22 March 2006 Continuing interest in possession under section 49, or a bereaved minor trust
Beneficiaries take capital absolutely at 18 Still a section 71 trust
Beneficiary gained an interest in possession between 22 March 2006 and 6 April 2008, and takes capital by 25 Can be an 18 to 25 trust under section 71D, with no charge on conversion
All other cases Relevant property from 6 April 2008, with no charge on entry

The 18 to 25 regime, with its charge between 18 and 25, is explained in bereaved minors and 18 to 25 trusts. Interest in possession treatment is covered in interest in possession trusts.

How is a surviving section 71 trust taxed?

A qualifying trust is not relevant property, so there is no ten year charge. Under section 71(4) there is no charge when a beneficiary becomes entitled on or before the specified age, or dies before it. Section 71(3) imposes a charge when property stops qualifying, or when the trustees make a disposition that reduces its value.

That charge uses the flat rate in IHTM42802: 0.25% for each of the first 40 complete quarters the property has been held, 0.20% for the next 40, 0.15% for the next 40, 0.10% for the next 40 and 0.05% for the next 40. HMRC’s example gives 21% after 25 years. A common trigger is the 25 year test: if the beneficiaries are not all grandchildren of a common grandparent, section 71 stops applying 25 years after the settlement began or the conditions were first met. IHTM42809 notes that trustees with the power can avoid the charge by vesting interests within the period.

How is a former A&M trust taxed under the relevant property rules?

IHTM42808 says ten year anniversaries run from the original start date of the trust, not from 2008. The property is treated as relevant property from 6 April 2008, and the ten year charge and any exit charge before the next anniversary are reduced for the quarters before that date. Where an anniversary had already fallen before 6 April 2008, HMRC treats the property as added on that date, so the rate for later exits is based on its value then, using the nil rate band at the date of the exit. The mechanics are in the trust ten year charge and trust exit charges.

How is the income taxed?

Section 479 of the Income Tax Act 2007 charges accumulated or discretionary income at the special rates. GOV.UK gives these for 2026 to 2027 as 39.35% on dividend type income and 45% on other income, with no tax on trust income up to £500, divided between a settlor’s trusts and never below £100 each. From 2027 to 2028, Finance Act 2026 adds a property trust rate and a savings trust rate. Payments to beneficiaries carry a 45% credit through the tax pool, explained in discretionary trusts and the tax pool.

Once a beneficiary is entitled to income, for example from 18 under section 31, that share is taxed like an interest in possession trust, at 20% and 10.75% on the trustees. Where a parent created the trust, section 629 of the Income Tax (Trading and Other Income) Act 2005 treats income paid to or for an unmarried minor child as the parent’s if it exceeds £100 a year.

What about Capital Gains Tax and the TRS?

When a beneficiary becomes absolutely entitled, GOV.UK says the trustees are treated as disposing of the assets at market value. Section 260(2)(d) of the Taxation of Chargeable Gains Act 1992 allows holdover relief where section 71(4) means no Inheritance Tax arises, and section 260(2)(db) does the same for 18 to 25 trusts. For 2026 to 2027 the trust annual exempt amount is £1,500. See gift holdover relief.

The Trust Registration Service exclusion in paragraph 16 of Schedule 3A covers trusts meeting section 71A or 71D, according to TRSM23020. An old A&M trust is an express trust and should be registered unless another exclusion applies.

How might this look for a real trust?

Illustration only. A grandmother set up a trust on 1 June 2004 for her two grandchildren, capital at 25, income accumulated until then and section 31 excluded. Nobody changed the terms. On 6 April 2008 the grandchildren were 1 and 3 with no right to income or to capital by 18, so the trust became relevant property with no charge. Its first ten year anniversary was 1 June 2014, and that charge was reduced for the quarters before April 2008. The 1 June 2024 anniversary was charged in the normal way and the next falls on 1 June 2034. Income is taxed at 45% and 39.35%. When each grandchild takes capital at 25, there will be an exit charge and the trustees will make a disposal at market value for Capital Gains Tax.

What mistakes come up most often?

  • Assuming an A&M trust still enjoys section 71 because the deed uses the name.
  • Dating ten year anniversaries from 6 April 2008 instead of the original start date.
  • Forgetting the 25 year test where the class goes beyond one set of grandchildren.
  • Applying trust rates to a beneficiary’s share after section 31 has given them the income.
  • Leaving the trust off the Trust Registration Service.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.