Trust Taxation Europe 2026

Only in common law countries (UK, Ireland, Malta, Cyprus) and countries that signed the Hague Convention on Trusts (Netherlands, Italy, Luxembourg, Liechtenstein). France, Germany, Spain, Austria, and most continental civil law countries do not have a native trust concept. Foreign trusts holding assets in France or Germany face complex anti-avoidance rules — typically the grantor is treated as still owning the assets for tax purposes, defeating the estate planning purpose.

A Liechtenstein Stiftung (foundation) is a separate legal entity created by a founder who transfers assets to it permanently. It has beneficiaries (who can include the founder's family and the founder themselves) and a foundation board managing it. Unlike a UK trust where a trustee holds assets for beneficiaries, the Stiftung itself owns the assets. Liechtenstein's Stiftung law (in the PGR) is extremely flexible — family Stiftungen are permitted without public interest requirements, the founder can reserve rights to amend or revoke, and the structure is private (not public register). CRS reporting has ended secrecy but the structure remains valuable for multi-jurisdictional family governance.

UK discretionary trusts pay an inheritance tax decennial charge every 10 years — up to 6% of the trust's value above the nil rate band. The calculation is complex: 30% × the hypothetical effective rate × the value above the available NRB. For a trust holding £1m above the NRB threshold, the 10-year charge is approximately £30,000 - £60,000 depending on the calculation. Exit charges apply when assets leave the trust between 10-year anniversaries. Despite this, trusts remain valuable for: holding life insurance outside the estate (in trust = no IHT, no probate delay), protecting assets for minor children, and asset protection from divorce.

Life insurance policies written in trust completely avoid UK IHT — the policy proceeds pass directly to beneficiaries outside the estate and outside probate. For other assets placed into discretionary trusts during the settlor's lifetime: the transfer may be a chargeable lifetime transfer (if it exceeds the NRB, 20% IHT applies immediately) and the trust then faces ongoing decennial charges. The trust does not eliminate IHT — it defers and restructures it. Bare trusts (where the beneficiary has an absolute right) are treated as owned by the beneficiary for IHT purposes. There is no simple way to use trusts to completely avoid UK IHT on large estates — the tax system is designed to prevent this.

CRS (OECD Common Reporting Standard) requires all financial institutions — including trustees, foundations, and banks — to automatically report details of accounts held by non-residents to their local tax authority, which then exchanges this information with 100+ signatory countries. Practically: if a UK resident is a beneficiary of a Cayman or Swiss trust, the trustee reports this to the local authority, which tells HMRC. If a German resident is grantor of a Malta trust, the Maltese trustee reports to Maltese tax authorities, who exchange with the German Bundeszentralamt. CRS has effectively ended the era of undisclosed offshore trust planning — tax authorities know. Compliant cross-border trust planning is still valuable for legitimate purposes.