Budget 2026: trustee debts lose their informal route to an IHT deduction, and incoming trustees get a one-year CGT window
Two trust measures published by HMRC with the UK Budget on 28 October 2026 took effect the same day. One puts trustee liabilities on a statutory footing for inheritance tax and closes a route for interest in possession trusts. The other lets a trust follow a trustee to the UK for up to a year without a capital gains exit charge.
On 28 October 2026, the day Budget 2026 was delivered to Parliament, HMRC published two policy papers on trusts that applied from that same day. The detail below comes from HMRC’s own tax information and impact notes, and both measures still depend on legislation in Finance Bill 2026-27.
Trustee liabilities and inheritance tax
The first paper, Inheritance Tax: preventing unintended deductions for liabilities in trust arrangements, deals with a gap in the Inheritance Tax Act 1984. Personal debts reduce the value of an estate under section 5, subject to the anti-avoidance restrictions in sections 162A to 162C and 175A, and to section 103 of the Finance Act 1986 for debts funded from the deceased’s own property. Nothing in the legislation, HMRC says, specifically provides for trustees’ liabilities. They have been reflected indirectly, through the general valuation rules and the trustee’s lien, the right of trustees to recover their costs from the fund.
The new legislation replaces that indirect route with a statutory rule. Liabilities properly incurred by trustees acting for a settlement will generally reduce the value of settled property, subject to the existing restrictions. Where a beneficiary is treated under section 49 as owning the trust property, which is the position of a qualifying interest in possession, the same debt restrictions will apply to liabilities the trustees incur. HMRC’s stated aim is that liabilities connected with value that came from the beneficiary’s own estate cannot reduce the tax charge. A draft clause has been published alongside the paper, and the Bill will include a time-limited power to make consequential amendments.
The measure applies to transfers of value and other chargeable occasions on or after 28 October 2026. HMRC scores it at nil revenue in every year to 2031-32, describes it as protecting existing receipts, and expects it to affect “a small number of individuals”. It anticipates one-off familiarisation costs for trust and estate practitioners.
Trusts that follow a trustee to the UK
The second paper, on Capital Gains Tax exit charges for temporarily migrated trusts, runs the other way. A trust’s residence follows its trustees, so an offshore trust can become UK resident when one of its trustees moves to the UK. If it later stops being UK resident, section 80 of the Taxation of Chargeable Gains Act 1992 treats the trustees as disposing of the trust assets and charges the gain.
A new section of that Act will switch off the exit charge where the trust became UK resident only because one or more trustees moved to the UK, and stops being UK resident later in the same tax year or in the following one. It applies to exit charges on or after 28 October 2026. HMRC’s stated objective is to let trustees move to the UK sooner than they otherwise would, as part of making the UK “a leading destination for globally mobile talent”. It expects a very small number of offshore trusts to be affected and puts the cost at negligible.
What it means for families and their trustees
The inheritance tax change is already in force, ahead of the Finance Bill text. Families with interest in possession trusts that carry borrowing, particularly loans where the money traces back to the life tenant, should have those arrangements reviewed against the draft clause now, because any death or chargeable event from 28 October onwards is valued under the new rule. For trusts with ordinary trustee borrowing, HMRC presents the statutory rule as a source of greater certainty than reliance on the lien.
The CGT relief is relevant where a family member or adviser acting as trustee of a non-UK trust plans to move to the UK, for instance under the four-year foreign income and gains regime. The window is short. A trust that is still UK resident after the end of the following tax year gets no relief from the normal exit charge, so families should settle who sits on the trustee body before the move.
Sources: HMRC, Budget 2026 tax related documents (28 October 2026); HMRC, Inheritance Tax: preventing unintended deductions for liabilities in trust arrangements (28 October 2026); HMRC, Capital Gains Tax exit charges for temporarily migrated trusts (28 October 2026).