Setting Up Trusts or Family Foundations After a Sale

Selling your business is a major life milestone, often bringing a sudden influx of wealth and new responsibilities. For many UK entrepreneurs, the next step is to secure their legacy, protect assets, and support family or charitable causes. Setting up trusts or family foundations can be powerful tools—but the details are complex, and the stakes are high. This guide walks you through everything you need to know about using trusts and family foundations after a business sale, with practical UK-specific advice, tax implications, and real-world considerations every small business owner should understand.

After selling your business, you may find yourself facing not just a windfall, but a whole new set of financial questions. How will you protect your wealth from future risks, such as divorce, creditors, or tax changes? How can you ensure your assets benefit your family over generations, or support causes close to your heart? Trusts and family foundations offer structured solutions to these challenges, letting you control how assets are managed and distributed.

A trust is a legal arrangement where you (the settlor) transfer assets to trustees, who manage them for the benefit of beneficiaries. Family foundations—less common in the UK, and usually set up as charitable trusts or companies—can be used for philanthropic goals, providing ongoing support to charities or community projects. Both can help with inheritance tax (IHT) planning, asset protection, and maintaining family values.

The decision to use a trust or foundation shouldn’t be rushed. Each option comes with legal, tax, and administrative complexities. Setting one up can be expensive and time-consuming, but—if you have a clear vision for your wealth—these vehicles offer flexibility and long-term benefits that simple gifts or direct transfers can’t match.

• Protect assets from future claims, divorce, or creditors
• Manage succession and provide for children or vulnerable family members
• Control how and when beneficiaries receive money
• Reduce exposure to UK inheritance tax
• Support charitable goals in a structured, ongoing way

The UK offers several types of trusts, each with distinct tax treatment and flexibility. The most common for post-sale planning are discretionary trusts and bare trusts, but others—such as life interest trusts and charitable trusts—can serve specific purposes. Family foundations, while not a legal term in UK law, typically take the form of charitable trusts or charitable incorporated organisations (CIOs) if you want to focus on philanthropy.

A discretionary trust gives trustees full control over how and when beneficiaries receive money, ideal for managing uncertainty (such as young children or future family needs). A bare trust gives beneficiaries an immediate, absolute right to the trust assets, which is simple but offers less protection. Life interest trusts provide income to one person for life, with capital passing to others later—useful in blended families or second marriages.

For charitable giving, a charitable trust or foundation can provide a permanent structure for supporting chosen causes, potentially offering tax reliefs both on setup and during ongoing operation. Deciding which structure to use depends on your aims, family circumstances, and how much control you want to retain.

One of the biggest motivators for setting up trusts or foundations after a business sale is tax efficiency—but the rules are complex, and mistakes can be costly. In the UK, inheritance tax (IHT) planning is often the main driver. Transferring assets into a trust can reduce your estate’s IHT bill, but only if done correctly and early enough.

For discretionary trusts, transfers are usually treated as chargeable lifetime transfers. If you put more than the £325,000 nil-rate band into a trust, a 20% IHT charge applies immediately, and further charges may apply every 10 years (the 'ten-year charge', currently up to 6%). If you survive seven years after making the transfer, the value falls out of your estate for IHT.

For charitable trusts and foundations, assets transferred are usually exempt from IHT. Gifts to charity in your will can also reduce the IHT rate on your remaining estate from 40% to 36% if you leave at least 10% to charity. However, trusts and foundations can trigger capital gains tax (CGT) on certain assets, and income produced by trust assets is often taxed at higher rates (the 'trust rate', currently 45% on income above £1,000 in 2026/27). Always seek advice before transferring shares, property, or investments.

• Chargeable lifetime transfers above £325,000 may trigger immediate IHT
• Trust income above £1,000 is taxed at 45% (trust rate) as of 2026/27
• Charitable gifts are usually IHT exempt
• Transferring assets may trigger CGT unless exemptions apply
• Ten-year IHT charges (up to 6%) apply to many trusts

Establishing a trust or family foundation is not as simple as signing a form—it requires clear objectives, careful drafting, and compliance with UK law. The earlier you start planning (preferably before the sale completes), the more options you’ll have and the greater the potential tax benefits.

You’ll need to select the right structure, appoint reliable trustees or directors, and create robust legal documents (the trust deed or foundation constitution). Registration with HMRC and other regulators is often required, and ongoing reporting obligations can be substantial. Mistakes at this stage can be expensive or even irreversible, so professional advice is essential.

• Start planning before your business sale completes for maximum flexibility
• Use a solicitor and a chartered tax adviser with proven trust expertise
• Draft clear, robust documents to prevent future disputes
• Appoint at least two trustees, ideally including a professional
• Register with HMRC and complete all compliance steps

Setting up a trust or foundation can seem straightforward, but many business owners fall into traps that create tax problems, family disputes, or regulatory headaches. The most frequent mistake is leaving planning too late—once your business sale completes, your options narrow, and you may face immediate tax charges you could have avoided with earlier action.

Another pitfall is unclear objectives or vague trust deeds. Ambiguity can spark family rifts or even legal battles, as beneficiaries argue over entitlements. Some business owners try to retain too much control over trust assets, risking the trust being 'look-through' for tax, or even invalidated. Others pick trustees without the right skills or independence, leading to poor management or conflicts of interest.

Regulatory non-compliance is another danger. All UK express trusts (unless exempt) must now be registered with HMRC’s Trust Registration Service—even if there’s no immediate tax liability. Failing to register can incur penalties and attract unwanted scrutiny. If you’re using a charitable structure, the Charity Commission has strict governance rules, and public reporting is mandatory.

• Delaying planning until after sale completion
• Vague or poorly drafted trust documents
• Retaining excessive control as settlor
• Appointing family-only trustees without professional oversight
• Failing to register with HMRC or Charity Commission

Setting up a trust or foundation is not cheap, and ongoing costs can be significant. Legal fees for drafting a bespoke trust deed typically start at £2,000–£5,000, but can rise much higher for complex or high-value arrangements. Professional trustees charge annual fees (often a percentage of assets or a minimum of £2,000–£5,000 per year). Family foundations may require similar outlays for legal work, plus ongoing governance costs.

You’ll also need to budget for accountancy and tax compliance. Trusts must file annual tax returns with HMRC, and pay any income or capital gains tax due. Charitable foundations must submit annual reports and accounts to the Charity Commission (if registered), and comply with strict rules on investment and spending. Non-compliance can risk penalties or even loss of charitable status.

Trustees or foundation directors have serious legal duties. They must act in the best interests of beneficiaries (or charitable purposes), avoid conflicts of interest, and keep detailed records of decisions. For family trusts, this often means regular meetings, professional advice, and transparent communication with beneficiaries. These obligations are not just box-ticking—they are legally enforceable, and failure can lead to personal liability.

• Budget for both setup and ongoing administrative costs
• Choose trustees with expertise in law, tax, and investments
• Maintain regular meetings and clear records
• Review trust/foundation operations annually for compliance
• Be transparent with beneficiaries about structure and aims

The people (or organisations) you appoint as trustees or directors are critical to the success of your trust or family foundation. Trustees have a legal duty to act impartially, diligently, and in the best interests of the beneficiaries or charitable purpose. Choosing only family members can create conflicts, especially if disputes arise over distributions or management.

Professional trustees—such as trust companies, solicitors, or accountants—bring impartiality and expertise, but charge for their services. A balanced approach is to appoint at least one professional alongside family members. Some trusts include a 'protector'—an independent person with power to oversee trustees, resolve disputes, or even replace trustees if necessary.

For charitable foundations, trustees (or directors in a CIO) must meet Charity Commission standards, avoid personal benefit, and ensure the foundation meets its stated objectives. Failure to do so can result in regulatory sanctions or personal liability. Take time to select individuals with the right mix of skills, integrity, and commitment, and consider succession planning to avoid future disruption.

• Appoint at least one independent, professional trustee or director
• Ensure trustees have expertise in tax, law, and investment
• Consider using a protector for extra oversight
• Review trustee appointments regularly
• Put in place clear procedures for handling disputes

Trusts and foundations should be just one part of your overall estate and succession planning. It’s vital to ensure your will, lasting power of attorney, and any business succession documents are aligned with your trust or foundation objectives. Mismatches can cause delays, disputes, or tax complications.

For example, if assets are placed in trust but your will leaves conflicting instructions, the courts may need to intervene—causing cost and distress. Likewise, if you have business assets left in your will that are also held in trust, this can create confusion over who is entitled to what. Regular reviews with your solicitor and financial planner ensure everything works together smoothly.

If you have family members abroad or assets outside the UK, cross-border issues can further complicate matters. Some trusts are not recognised in certain countries, and tax rules can differ widely. Always flag any international elements to your advisers early, as specialist advice may be needed to avoid double taxation or legal disputes.

• Review your will and power of attorney alongside your trust/foundation
• Ensure all documents use consistent language and intentions
• Regularly update your estate plan after major life events
• Seek specialist advice for overseas family or assets
• Communicate your intentions to family to avoid future disputes

If you want to use some or all of your sale proceeds for philanthropy, a family foundation can be a powerful legacy. In the UK, this usually takes the form of a charitable trust or a Charitable Incorporated Organisation (CIO). These structures let you create a permanent vehicle for supporting chosen causes, with your family involved in governance and grant-making.

Setting up a foundation requires careful planning. You must meet the Charity Commission’s test for public benefit, and your aims must be exclusively charitable (such as relieving poverty, advancing education, or supporting the arts). Foundations can run their own projects or make grants to other charities. Tax reliefs include IHT exemption for gifts, Gift Aid on donations, and exemption from corporation tax on most income and gains.

Family foundations can also help instil values and involve the next generation in philanthropy. Many successful entrepreneurs use foundations to teach children about responsible wealth, decision-making, and giving back to the community. However, foundations are highly regulated, require annual reporting, and cannot be used for personal benefit. Any payments to family members (such as salaries for running the foundation) must be properly authorised and justified.

• Define clear, charitable objectives for your foundation
• Choose the right legal structure (trust, CIO, or company)
• Appoint a mix of family and independent trustees/directors
• Register with the Charity Commission before fundraising or grant-making
• Establish transparent grant-making and governance processes