Trusts and Estates Tax
Updated for 2026 IRD rates
Overview of Trust Taxation
Trusts are a common structure for holding and managing assets in New Zealand. For tax purposes, trusts are treated as separate taxpayers with their own IRD number. The taxation of trusts depends on whether income is retained by the trust (trustee income) or distributed to beneficiaries (beneficiary income).
Trustee Income
Trustee income is income that the trust earns but does not distribute to beneficiaries in that income year. It is taxed to the trustee at the following rates for the 2026 tax year:
| Income Type | Tax Rate |
|---|---|
| Trustee income (standard) | 33% |
| Trustee income (no beneficiary currently entitled) | 33% |
| Foreign sourced trustee income (certain situations) | 28% |
Note: If the trust is a complying trust with a corporate trustee or certain other characteristics, different rates may apply. Always check with a tax professional.
Beneficiary Income
When a trust distributes income to a beneficiary, that income is taxed at the beneficiary's marginal tax rate, not the trust rate. The beneficiary includes the distributions in their personal tax return and pays tax at their own rate. If the trust has already paid tax on the income, the beneficiary receives a tax credit (through a beneficiary allocation or memorandum account).
Key points about beneficiary income:
- Income distributed to beneficiaries is included in the beneficiary's taxable income
- The trust can claim a deduction for the amount distributed
- Beneficiaries who are minors (under 16) may be subject to different rules — income up to $1,000 is tax-free, and anything above is taxed at 33%
- Trust distributions to Māori authorities may be subject to different rates
Trust Tax Returns
Trusts must file an annual tax return (IR6) with IRD. The return includes:
- Trustee income and expenses
- Beneficiary income allocations
- Distributions to beneficiaries
- Tax credits, including RWT and foreign tax credits
The trust tax return is due by 7 July following the end of the tax year (or 31 March if using a tax agent).
Estate Taxation
When a person dies, their estate becomes a separate taxpayer for the period of administration. For the first 3 years, estate income is taxed at the beneficiary's marginal rate (subject to certain conditions). After 3 years, or if the income is accumulated, it is taxed at the trustee rate of 33%.
Key considerations for estates:
- Income earned during the administration period is taxable
- Expenses of administration (legal fees, executor's fees) are generally deductible
- Distributions to beneficiaries are treated as beneficiary income
- New Zealand does not have an inheritance or estate tax
Trust Disclosure Rules
New Zealand has introduced new trust disclosure requirements. Trustees must provide detailed information about the trust's structure, settlers, beneficiaries, and other parties. This information is submitted with the trust's annual tax return. The rules apply to all trusts, including foreign trusts (with some modifications).
The 33% Trustee Rate and When It Applies
Trustee income — income retained in the trust rather than distributed — is taxed at the flat 33% rate for the 2025/26 year (matching the 33% bracket, and well below the 39% top personal rate). Beneficiary income, by contrast, is taxed at the beneficiary's own marginal rate: the trust claims a deduction and the beneficiary pays tax on the distribution through their return. This is why trusts are most attractive when they distribute to low-bracket beneficiaries or retain income that would otherwise be taxed at 39%. The trade-off is compliance: since 2021/22, most trusts must file a return and disclose substantial settlements and distributions, and the disclosure requirements apply even where the trust has little or no income — the filing obligation itself is not optional.
Estates, Compliance and Getting It Wrong
Estates are taxed differently from ongoing trusts: the executor files returns for the estate, income is taxed at trustee rates (33% for the 2025/26 year, with the first $1,000 of estate income taxed at the beneficiary's rate in some circumstances), and estate income distributed to beneficiaries is taxed in their hands. Common compliance traps include missing the trust return filing deadline (31 March for the prior tax year), failing to disclose beneficiary distributions, and treating capital settlements as income. If you are setting up a trust or administering an estate, the disclosure rules changed substantially in 2021 and IRD actively reviews trust filings — professional advice is strongly recommended before the first return, not after an IRD query.
Related Guides
Deep dive — 2026 update
Trustee income vs beneficiary income: a worked example
The trust's tax outcome turns on where the income lands. Take a family trust that earns $80,000 of rental income in the year, with one adult beneficiary on a $60,000 salary and one 15-year-old grandchild:
| Allocation of $80,000 | Taxed at | Tax |
|---|---|---|
| $20,000 beneficiary income to the $60,000 earner | 30% marginal | $6,000 |
| $10,000 beneficiary income to the minor | 33% (minor beneficiary rule) | $3,300 |
| $50,000 retained as trustee income | 33% trustee rate | $16,500 |
| Total | $25,800 |
Note the shape of the 2024+ rules: with the trustee rate at 33% and the top personal rate at 39%, distributing to a beneficiary on a lower marginal rate is often worthwhile — but only if the distribution is real and the beneficiary is entitled to it. Income retained in the trust is taxed at 33% regardless of how the trust invests.
The minor beneficiary rule
Beneficiary income paid to a child under 16 is taxed at the trustee rate (33%) unless the trust is a "grandparented" exception — a deceased estate, a disability trust under the disabled beneficiary threshold, or income from an estate in the first five years. This rule exists to stop income being diverted to children's lower brackets, and it is the reason most family trusts with young children keep income in the trust and pay 33%.
When a trust still makes sense in 2026
- Asset protection — separating business or relationship risk from family assets.
- Not yet distributed wealth — a long-term structure for assets intended for the next generation.
- Income splitting with adult beneficiaries on lower marginal rates, where genuinely earned and distributed.
- Disability trusts — specific tax and welfare advantages that justify the compliance cost.
What trusts are no longer good at is simple tax reduction for a single person. With a 33% trustee rate, a 39% top personal rate and full disclosure requirements, a trust now costs $1,500–$4,000 a year in accounting to run — which is hard to justify unless a non-tax purpose exists.
Compliance calendar
- 7 July — IR6/IR7 and details of trust distributions due for the tax year that ended 31 March.
- Annual — disclosure of settlements, distributions, beneficiaries and appointer/jurisdiction information under the Trust Disclosure rules.
- Every distribution — keep a resolution or minute recording the decision and amount, dated and signed.
- Ongoing — remember that distributions to beneficiaries on lower incomes create an obligation on the beneficiary to include that income in their own return.