Can a Settlor Be a Trustee in the UK?

If you’re exploring trusts to hold company shares, protect family wealth or structure an employee incentive, you’ll quickly run into a key question: can the person setting up the trust (the settlor) also act as a trustee?

The short answer is yes - under UK law, a settlor can also be a trustee - but there are important guardrails around conflicts, tax and administration. Get those wrong and the trust may not deliver the control, protection or tax outcomes you expected.

In this guide, we demystify how this works for small businesses and founders. We’ll cover when a settlor can be a trustee, the risks to manage, and a sensible step-by-step to set your trust up safely and keep it compliant as your business grows.

Quick Answer: Yes - But There Are Important Caveats

In most UK scenarios, a settlor can also be appointed as a trustee. That’s common where a founder settles shares into a family or discretionary trust and wants to retain day-to-day oversight as a trustee alongside an independent co‑trustee.

However, two key caveats apply:

• Fiduciary duties still apply. As a trustee, you must act solely in the best interests of the beneficiaries, follow the trust deed, and exercise reasonable care and skill (Trustee Act 2000). Wearing both “settlor” and “trustee” hats doesn’t dilute those duties - in some ways, it heightens scrutiny around conflicts.
• Tax rules can “look through” the trust. Where the settlor (or their spouse/civil partner) can benefit, UK “settlor‑interested” rules may treat some income as the settlor’s for tax purposes. That can undermine expected tax planning if not managed carefully.

It’s also worth noting basic formation rules. You need certainty of intention, subject matter and objects (beneficiaries), and you’ll usually document the arrangement in a signed trust deed. If the trust will hold land, property law adds formalities (for example, either two individual trustees or a trust corporation to give valid receipts on sale). If you’re new to the concept, a quick refresher on What Is A Trust is a good starting point.

When Would A Business Use A Trust?

Trusts are tools. They don’t fit every business, but in the right circumstances they can deliver control, succession, and asset protection benefits you can’t easily replicate with simple shareholdings.

Holding Shares For Founders Or Family

Founders sometimes transfer a portion of their shares to a discretionary trust to plan for succession or to benefit family members without giving up voting control. The trustee can hold the shares, receive dividends, and distribute income at its discretion within the class of beneficiaries set out in the deed.

If you’re weighing trust types, many owner‑managers opt for a discretionary trust because it offers flexibility over income and capital distributions. For a plain‑English overview of the options, have a look at discretionary vs fixed or bare trusts, and how the differences play out in practice.

When shares are transferred into the trust, you’ll typically document a Share Transfer and update the company’s statutory registers. Where the trustee is a company, you’ll also need to consider the People with Significant Control position for transparency on who ultimately controls voting rights or can influence decisions.

Employee Bonus Or Incentive Trusts

Some SMEs create an employee benefit or bonus trust to deliver incentives while avoiding granting direct share ownership. The trustee can hold funds or shares and allocate awards by reference to performance conditions. This can work alongside option schemes (like EMI options) or as a separate cash‑funded plan.

Because employee arrangements are sensitive, governance matters. Consider appointing at least one independent trustee, setting clear distribution policies and aligning trustee powers with your remuneration framework. If trusts feel like overkill for your current stage, a well‑drafted Employment Contract or commission agreement might be a simpler bridge until you scale into a formal trust‑based plan.

Can A Settlor Also Be A Beneficiary?

Yes, a settlor can also be a beneficiary in the UK, but this introduces extra complexity. It’s typical in family trusts to include the settlor in the class of potential beneficiaries. However, there are two practical constraints to keep front‑of‑mind:

• Don’t collapse the trust. You can’t have a structure where one person is the sole trustee and sole beneficiary - that defeats the essence of a trust relationship. At a minimum, include another trustee and a wider class of beneficiaries.
• Expect “settlor‑interested” tax treatment. Where the settlor (or their spouse/civil partner) can benefit, trust income is commonly attributed back to the settlor for income tax. That isn’t necessarily bad - just be realistic about the tax outcome from day one.

From a governance standpoint, it’s wise to build checks and balances: appoint a co‑trustee, set clear decision‑making rules, and record a non‑binding letter of wishes to guide the trustee’s discretion. If you want to see where trusts fit into broader business ownership and succession planning, this guide to trusts in UK business maps out common use cases.

Legal Duties And Conflicts If You Wear Two Hats

If you’re both settlor and trustee, you’re wearing two very different hats. The law expects you to respect the boundary.

Fiduciary Duties And Decision-Making

As a trustee, your core duties include:

• Acting for the beneficiaries’ best interests and within the powers and purposes of the trust deed.
• Exercising reasonable care and skill (Trustee Act 2000), including taking advice on investments and diversification where appropriate.
• Managing conflicts - you must not profit from your position or put personal interests ahead of the trust without clear authority in the deed and (ideally) beneficiary consent where required.
• Keeping proper accounts and records so decisions can be justified, especially where discretion is exercised between different beneficiaries.

Practical conflict controls for owner‑managed businesses include appointing an independent co‑trustee, requiring dual sign‑off for distributions, and documenting the basis for decisions. This helps avoid challenges from disgruntled beneficiaries or allegations that decisions were pre‑determined.

Keeping Records And Avoiding “Sham” Trust Allegations

A trust must be real. If in practice the “trust” operates as your personal bank account or you ignore the deed’s rules, HMRC or a court may treat the structure as a sham. To reduce risk:

• Execute a robust trust deed as a deed, with correct signatures and witnessing. If you’re new to deed formalities, these practical tips on executing contracts and deeds in England will help you get it right first time.
• Open separate bank and brokerage accounts in the trustee’s name and avoid mixing trust assets with personal funds.
• Minute key trustee decisions and retain supporting advice (tax, valuation, investment).
• Apply the deed consistently - if it requires consent or notice for a certain action, follow that process every time.

Tax And Compliance Considerations To Watch

Trusts interact with several UK tax regimes. Getting upfront advice is essential because small drafting changes can have big tax effects. Here are the high‑level issues most business owners should consider.

Settlor-Interested Trust Rules

Where the settlor (or their spouse/civil partner) can benefit from trust income or capital, income tax anti‑avoidance rules can apply. In broad terms, many categories of trust income may be taxed on the settlor as if they received it directly. That can neutralise hoped‑for income splitting.

This isn’t necessarily a reason to abandon the structure - many founders accept settlor‑interested treatment for flexibility and succession benefits. The key is to design the deed with eyes open and to model the likely tax bills.

CGT, IHT And Stamp Taxes On Setup And Transfers

Transferring shares or other assets into a trust can be a disposal for capital gains tax (CGT). In some cases, hold‑over relief may be available (for example, for certain business assets or chargeable transfers), deferring the gain until a later disposal by the trustees or beneficiaries. Whether relief applies depends on the asset type, your business status and deed design - get tailored tax advice before you sign.

For inheritance tax (IHT), most discretionary trusts are within the “relevant property” regime. That can trigger entry charges if value exceeds available nil‑rate bands, and periodic/exit charges over time. Again, this doesn’t make trusts “bad”; it simply means the schedule and quantum of tax differ from outright ownership. If the trust will hold land, consider stamp duty land tax (SDLT) and any higher rates that may apply.

Whatever you transfer, record it properly with a Share Transfer where shares are involved and update the company’s registers so your corporate records stay clean and compliant.

HMRC Trust Registration Service

Under the Money Laundering Regulations, many UK express trusts must register on HMRC’s Trust Registration Service (TRS), including non‑taxable trusts in prescribed categories and any trust with a UK tax liability. Registration deadlines and update obligations apply, and failure can lead to penalties. Build TRS into your setup checklist so it isn’t forgotten.

How To Set Up The Trust Safely (Step-By-Step)

Here’s a practical workflow if you plan to act as both settlor and one of the trustees.

1) Define Your Objective And Choose A Trust Type

Start with the “why”: succession, family support, asset protection, employee incentives, or a mix. The purpose drives design. For flexible business and family planning, a discretionary trust is common; for straightforward nominee arrangements, a bare trust might suffice. This overview of trust types can help clarify the differences.

2) Decide Who Will Be Trustees And Beneficiaries

You can be both settlor and trustee, but appoint at least one additional trustee (individual or corporate) to improve governance and - for some assets such as land - to meet practical requirements. Define a clear class of beneficiaries aligned to your purpose (e.g. spouse/partner, children, future issue, charities, key employees for an incentive trust).

3) Draft A Robust Trust Deed

Don’t rely on generic templates. Your deed should cover trustee powers (including investment, indemnity and conflict management), distribution mechanics, appointment/removal of trustees, and any special controls (like requiring independent trustee consent for certain transactions). If you expect to issue new shares to the trust or restructure down the track, design for flexibility.

If your trust will hold business assets, it’s smart to align deed terms with your company governance documents. For example, if multiple founders are involved, ensure your Shareholders Agreement and the trust deed are consistent on voting arrangements and restrictions on share transfers.

4) Execute The Deed Properly

Trust deeds are deeds, so execution formalities matter. Make sure the settlor signs as a deed, trustees sign their acceptance as a deed, and witnessing follows the rules (in person, independent, correct details). If a corporate trustee is involved, follow the Companies Act execution options. For a refresher, see the practical guidance on executing contracts and deeds in England.

5) Transfer Assets And Update Company Records

Move the relevant assets into the trustee’s name. For shares, complete a Share Transfer, update the register of members, issue a new share certificate and notify any restrictions in your articles or investor agreements. Consider whether a declaration of trust is required as an interim step where immediate transfer isn’t practical.

6) Register On The TRS (Where Required)

Check whether your trust must register on HMRC’s Trust Registration Service and note the deadlines for updates (for example, changes to trustees, beneficiaries or beneficial owners). Keep records ready in case of enquiries.

7) Operate The Trust Professionally

Open separate accounts, minute decisions, obtain valuations where distributions are made by reference to value, and review the deed annually. If you’re using the trust within a broader ownership plan, the big‑picture guide to trusts in UK business is a helpful reference as you grow.

Alternatives To Consider If A Settlor As Trustee Isn’t Right

Trusts are powerful but they aren’t the only route to control or succession outcomes. Depending on your goals, consider:

• Corporate trustee with independent directors. If you worry about conflicts, appoint a company as trustee and bring in an independent director to add objectivity.
• Shareholder‑level contracts. If your priority is founder alignment, a clear Shareholders Agreement can hard‑wire decision‑making, pre‑emption rights and exit terms without adding a trust structure.
• Simple nominee/bare trust arrangements. Where you just need a name‑on‑title solution (e.g. a nominee holding shares for administrative reasons), a bare trust with limited powers may be sufficient - simpler to run, fewer tax quirks.
• Direct awards or options for staff. For early‑stage teams, EMI options or performance‑based bonuses written into your Employment Contract can be cleaner than a trust until the headcount or value justifies the extra governance.

If you’re unsure which route fits, step back to first principles: what outcome do you need to achieve in 12–36 months? Then choose the lightest legal tool that safely gets you there.

Key Takeaways

• Under UK law, a settlor can be a trustee. It’s common in owner‑managed businesses, but you must still meet strict fiduciary duties and manage conflicts.
• If the settlor or their spouse/civil partner can benefit, expect “settlor‑interested” income tax treatment and plan for the cash flow impact.
• Document the arrangement with a professionally drafted deed, execute it correctly as a deed, and keep trustee and personal affairs clearly separate to avoid “sham” allegations.
• Transferring shares or assets into a trust has tax consequences (CGT, IHT, and potentially SDLT) - model these and seek tax advice before transferring.
• Build governance in: appoint an independent co‑trustee, minute decisions, and align trust powers with your company governance and any Shareholders Agreement.
• Don’t forget compliance: complete the relevant Share Transfer, update company registers, consider PSC implications, and register the trust on HMRC’s TRS where required.
• If a trust feels heavy for now, consider simpler alternatives such as options/bonuses in your Employment Contract or a bare trust for limited purposes.

Getting your structure right from day one will protect your business and make future funding, succession and exits much smoother. If this feels like a lot to juggle, don’t stress - with tailored advice, setting up a trust (or choosing a better alternative) can be straightforward.

If you’d like help designing or reviewing a trust structure for your business, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no‑obligations chat.