Figures issued by HM Revenue & Customs showed that the number of UK family trusts fell to 160,500 in 2012-13 from 165,000 in 2011-12.

“The decrease in the number of trusts covered by these statistics may be a result of gradual changes in behaviour following an increase in the tax rate applicable to trusts (henceforth referred to as the ‘special tax rate for trusts’) in 2004, which could make them less attractive,” HMRC said in a statement. 

In 2010-11, the special tax rate for trusts rose to 50 per cent from 40 per cent and the dividend trust rate rose to 42.5 per cent from 32.5 per cent, the tax authority noted. It also said that total income reported by trusts rose 2 per cent to £1.985 billion in 2012-13.

“Given the tax increase on trusts in recent years, it is not surprising that the number of UK family trusts and estates is decreasing. Unless the nil rate band is significantly increased – a policy cautiously alluded to by the Tories – this downward trend is unlikely to be halted any time soon,” James Ward, partner and head of private client at Seddons, the commercial law firm, said of the figures. (The “nil rate” band refers to the level at which tax applies to trusts.)

“However, as family structures become more complex and the wave of baby boomers moves ever closer to retirement, the number of trusts being drafted into wills will continue to increase. Although discretionary trusts may not be their first port of call, individuals are clearly looking for more secure ways of preserving the next generation’s inheritance,” Ward said.