HMRC checks trusts in the same way as other taxpayers: it can open an enquiry into a trust and estate tax return within the statutory window, make discovery assessments for earlier years, and use information notices. The risks it looks for are trusts that have never been registered or notified, income or gains left off the SA900, inheritance tax charges on relevant property trusts that were never reported, and income that belongs on a settlor’s or beneficiary’s return. Trustees respond jointly, with the trust deed, records and an honest account of any gaps.

Who is HMRC actually checking?

The trustees. The gov.uk guidance says trustees are responsible for reporting and paying tax for the trust; where there are two or more, one is nominated as principal acting trustee, but the others remain accountable and can be charged tax and interest if the trust does not pay. Under Self Assessment the trustees work out the liability themselves, and HMRC deals with correctness on a process now, check later basis (TSEM2100). The trustees’ wider duties are covered in trustees’ tax responsibilities.

How does HMRC pick a trust for a check?

HMRC does not publish a selection model for trusts, but its manuals show where the information comes from and how checks are organised:

  • The register. The Trust Registration Service holds beneficial ownership details for UK trusts and some non UK trusts, and that information is available to HMRC (TRSM10020). A trust whose register entry, tax returns and the returns of its settlor and beneficiaries do not match is easy to spot.
  • The return itself. An enquiry into a trustee’s return under section 8A TMA 1970 can be opened under section 9A, so anything on or missing from the SA900 is open to question.
  • Offshore arrangements. HMRC’s compliance guidance on offshore structures notes that putting assets into a trust may carry an immediate inheritance tax charge, further charges at ten year anniversaries and on exits, and income tax and capital gains tax consequences for UK resident settlors and beneficiaries (CH206550). Enquiries into non resident trusts are opened only after liaison with a central risk team (TSEM10280).

What are the common risk areas?

Registration and notification gaps

If HMRC finds a trust that should be on the register but is not, or whose details are out of date, it normally sends a warning letter with a time limit; failing to act can lead to a £5,000 penalty on the lead trustee (TRSM80020 and TRSM80030). Separately, trustees who are chargeable to income tax or capital gains tax and have not received a notice to file must notify HMRC within six months of the end of the tax year under section 7 TMA 1970. See the Trust Registration Service for the registration rules.

Undeclared income and gains

Most trusts pay no income tax on income up to a tax free amount, normally £500, but once income exceeds it tax is due on the whole amount. For 2026 to 2027 accumulation and discretionary trusts pay 39.35% on dividend type income and 45% on other income. Interest from a forgotten account, rent collected by a family member, or a gain on a share sale can push a trust over the threshold without anyone noticing. Returns are due by 31 January online or 31 October on paper; our SA900 guide covers what goes on it.

Inheritance tax charges

Trustees must complete form IHT100 when the trust needs to pay inheritance tax. Missed ten year charges and exit charges are a natural target, because the value at each anniversary is a matter of record.

Income taxed on someone else

Where trustees mandate income from an interest in possession trust to a beneficiary, the beneficiary must include it on their own return. Income of a bare trust is the beneficiary’s. In a settlor interested trust the settlor is taxed. A check on the trust often widens into a check on these individuals.

How far back can HMRC go?

For an enquiry, section 9A TMA 1970 allows notice within 12 months after the day the return was delivered, if filed on time, or by the quarter day after the first anniversary of delivery if filed late. Outside that window HMRC must rely on discovery: the normal limit is 4 years after the end of the tax year (section 34), extended to 6 years where the loss was brought about carelessly and 20 years where it was deliberate or there was a failure to notify (section 36). For inheritance tax on trust charges the separate limits in section 240 IHTA 1984 apply.

What happens during the check?

HMRC’s factsheet CC/FS1a explains the process. HMRC tells the trustees what it needs, may ask for a meeting (which is optional) and may ask to inspect records. Information and inspection notices under Schedule 36 FA 2008 cannot be ignored. Returns and payments must continue during the check. Where the trustees are non resident and do not cooperate, HMRC can also use section 748 ITA 2007 notices against settlors or beneficiaries to obtain details of income paid to the trustees (TSEM10280).

How should trustees respond?

  1. Agree who leads. All trustees are accountable, so decide who will deal with HMRC and make sure any adviser is authorised.
  2. Assemble the core documents. The trust deed and any deeds of appointment, the register entry, bank and investment statements, records of distributions and copies of R185 statements given to beneficiaries.
  3. Reconcile before replying. Compare income per the statements with the returns, and check whether any IHT100 should have been filed.
  4. Disclose problems. CC/FS1a explains that penalties are reduced by the quality of disclosure: telling HMRC what is wrong, helping it work out the figures and giving access to records.
  5. Ask for time if needed. HMRC may allow extra time where there is good reason, such as serious illness or a bereavement.

Our general guide to what happens in an HMRC compliance check covers the procedure in more detail.

What penalties can follow?

A trustee’s return under section 8A is listed in Schedule 24 FA 2007, so careless or deliberate inaccuracies attract inaccuracy penalties as for individuals. The register carries its own £5,000 penalty after a warning letter has been ignored, and inheritance tax has penalties for late and incorrect accounts.

How might a check unfold?

Illustration only. A discretionary trust holds a let flat and a share portfolio. The trustees file SA900s showing the dividends but not the rent, which a family member has been collecting into a personal account. HMRC opens an enquiry into the latest return and asks for bank statements. The trustees reconcile the rent, find three earlier years affected, and disclose them before HMRC asks. HMRC assesses the earlier years on the 6 year careless basis, charges interest, and reduces the penalty for the quality of the disclosure.

What mistakes make checks worse?

  • Assuming a trust with little income does not need to file or register.
  • One trustee replying without the others’ knowledge or the full records.
  • Failing to issue R185 statements, so beneficiaries’ returns do not match the trust’s.
  • Overlooking IHT100 obligations because no income tax was due.
  • Treating an information request as optional.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

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.