What is a Trust Account?

A trust account is a bank account in which money is held for the benefit of someone other than the person who is beneficially entitled to it. The trustee, the person or business in whose name the account is held, has legal control of the funds. But the money belongs beneficially to someone else: the beneficiary. The account exists to keep that money separate, protected and clearly identifiable as belonging to the beneficiary, not the trustee.

In the UK, the term covers two quite different situations. Families and individuals use trust accounts to hold savings for children or manage assets under a formal trust. Businesses and regulated firms hold client money (funds belonging to their customers that must, by law or by professional rules, be kept separate from the firm's own money) in accounts that are usually structured as trusts, even though they go by other names: client accounts, client money accounts, safeguarding accounts.

This guide explains how trust accounts work in both contexts, who uses them, and how they differ from the client accounts and safeguarding accounts they're often confused with.

Trust account meaning: the three roles in every trust

Every trust involves three roles, though the same person can occupy more than one of them, and there is often more than one trustee or beneficiary:

• The settlor puts the money or assets into the trust.
• The trustee holds and manages the money. The trustee holds legal title to the account, but must exercise that control exclusively in the beneficiaries' interests, it's a fiduciary duty, backed by duties of care, loyalty and even-handedness between beneficiaries.
• The beneficiary is the person (or people) the money actually belongs to and who will ultimately benefit from it.

The defining feature of a trust account is this split between legal ownership (the trustee's name is on the account) and beneficial ownership (the money is the beneficiary's). That split has practical consequences: the money in a trust account is not the trustee's own property to use or dispose of, does not form part of the trustee's estate on insolvency or death, and, importantly, is not available to the trustee's creditors if the trustee runs into financial difficulty.

The two main types of trust account in the UK

Personal and family trust accounts

Individuals use trust accounts to hold money under a formal trust arrangement, most commonly for children, for inheritance planning, or for family members who can't manage their own finances. Trusts take many forms, and the right structure depends on the settlor's objectives and the tax position. The structures most often encountered include:

• Bare trusts: the simplest form. The beneficiary is absolutely entitled to the money and the income from it from the outset; where the beneficiary is a child, they can call for the assets on reaching 18 in England and Wales (16 in Scotland). Often used by parents or grandparents saving for a child.
• Discretionary trusts: the trustees decide how and when to distribute funds among a class of beneficiaries.
• Interest in possession trusts: one beneficiary has the right to income from the trust's assets, while the capital is preserved for others.

UK express trusts must be registered with HMRC's Trust Registration Service, although a number of exclusions apply and the position for bare trusts and certain low-risk arrangements depends on the facts. Trusts also have their own income, capital gains and inheritance tax treatment, which varies by trust type and is an area where trustees commonly take professional advice.

Business trust accounts: holding client money

The second context, and the one that matters for most businesses searching for a trust account, is holding client money: funds a business receives or holds that belong to its customers.

Many UK firms are required by their regulator or professional body to hold client money separately from their own, in accounts structured so that the money is held on trust for clients. The trust structure is what does the protective work: because the funds belong beneficially to the clients, they are ring-fenced from the firm's own finances. If the firm fails, client money held on trust does not form part of the firm's estate for its creditors. It belongs to the clients throughout.

Bank of London provides the account infrastructure behind arrangements like this, as the account-holding bank rather than as trustee: the trustee role, and its legal duties, stay with the firm or individual named as trustee. We offer Trust, General Client Funds, Safeguarding and CASS accounts, with client money segregation structures built to meet FCA CASS 7 requirements. Client funds held with us are placed at the Bank of England rather than lent on, and eligible deposits are protected by the FSCS up to the applicable limit, subject to FSCS eligibility rules.

How does a trust account work?

However it's used, a trust account works through the same core mechanics:

Segregation. Money belonging to beneficiaries or clients is paid into the trust account and kept apart from the trustee's or firm's own funds. The firm's operating money and the trust money never mix.

Designation. The account is set up and named so the bank knows, and the records show, that the funds are held on trust. This matters at the worst possible moment: in an insolvency, clear designation is part of what establishes that the money belongs to clients, not the firm.

Controls and record-keeping. The trustee keeps records of whose money is in the account and reconciles them regularly. For regulated firms, the frequency and standard of reconciliation is set by the applicable rules; for private trusts, it's part of the trustee's fiduciary duty.

Acknowledgement from the bank. Regulated firms holding client money typically obtain written acknowledgement from their bank that the account holds client money on trust and that the bank has no claim over it, for example no right to combine it with other accounts or use it to offset the firm's debts.

A worked example

A letting agent collects rent on behalf of 200 landlords. Each month, tenants pay rent into the agent's client trust account. That money never belongs to the agent: the agent holds it on trust for the landlords, minus agreed fees. The agent's records show exactly how much of the account balance belongs to each landlord, reconciled against the bank statement. If the agent's own business failed, the rent held in the trust account would not be available to the agent's general creditors: it belongs to the landlords. Whether each landlord recovers in full depends on the account being properly segregated and the records being accurate, if the account is short, the landlords would share what is there in proportion to their entitlements.

The same logic scales up to a solicitor holding house-purchase funds, an investment platform holding uninvested client cash, or a travel firm holding customer prepayments. The account structure exists so that "whose money is this?" always has a clear, provable answer.

Who uses trust accounts?

Arrangements of this kind appear across UK sectors wherever one party holds money belonging to another. The account names differ by regime — client account, client money account, safeguarding account — but a trust usually sits underneath:

• Solicitors and law firms hold client money (completion funds, settlements, money on account of fees) under the SRA Accounts Rules, in client accounts held on trust.
• Investment firms, wealth managers and fund managers hold client money in client money accounts opened under the FCA's client money rules (CASS 7) and designated as such. These are not usually called "trust accounts", but CASS 7 places the money on a statutory trust for clients from receipt so the legal effect is a trust, even though the account is a CASS client money account.
• Insurance intermediaries may hold client money under CASS 5, either on a statutory trust or, with the required permissions and terms, on a non-statutory trust, which permits a firm to extend credit to clients from the trust and so carries different risks.
• Property professionals such asletting agents, estate agents and managing agents, hold tenant deposits, rent and service charge funds subject to client money protection requirements.
• Travel businesses use trust arrangements to protect customer prepayments, including trust models used to meet ATOL and package travel protection requirements.
• Trustees of family trusts, charities and estates hold funds for beneficiaries under express trusts.

Statutory trust accounts

A statutory trust is one imposed by legislation, or by regulatory rules made under statute, rather than created by a settlor's trust deed. The most prominent UK example is the FCA's client money regime for investment business: under CASS 7, client money a firm receives is held on a statutory trust for its clients from the moment of receipt. The firm doesn't need to draft a trust document. The rules themselves create the trust and define how the money must be held, segregated and, in a failure, distributed.

The practical effect is a comparable protective ring-fence: client money held on statutory trust belongs to clients, not the firm, and is distributed to clients rather than the firm's general creditors if the firm fails. The mechanics differ, however, and CASS 7A sets out a specific distribution process for the pooled client money, including how shortfalls are shared and how the costs of distribution are met.

Express trusts (created by deed) and statutory trusts (created by rules) can sit behind different account types, which is why a firm's regulatory category, not just the account's name, determines what protections apply.

Trust account vs client account vs safeguarding account

These three terms are often used loosely, and they overlap, but they are not interchangeable:

• Trust account describes the legal structure: money held by one party for the benefit of another, with beneficial ownership remaining with the beneficiary. Both personal trusts and many client money arrangements use this structure.
• Client account describes the purpose: an account a business uses to hold customers' money. Most regulated client accounts are also trust accounts. The trust is what provides the protection. Client accounts may be designated (holding an identified client's money, often earmarked in the account name) or general/pooled (holding money for many clients together, with the firm's records identifying each client's share).
• Safeguarding account is specific to e-money and payment institutions. These firms must safeguard "relevant funds", typically by holding them in segregated safeguarding accounts at a bank. Safeguarding achieves a similar goal, protecting customer funds if the firm fails, but it is a distinct regime under payments and e-money regulation, with its own rules on segregation, acknowledgement and reconciliation. The FCA has been reforming this regime, with strengthened rules for payments and e-money firms taking effect from May 2026, and has consulted on moving safeguarding onto a statutory trust footing in a future end-state regime.

The practical takeaway: which regime applies depends on what kind of firm you are and what kind of money you hold. A solicitor's client account, an investment firm's CASS 7 account and an EMI's safeguarding account all protect customer money, but under different rules with different requirements.

Opening and running a trust account: what's involved

The details vary by context, but the recurring themes are:

• Evidence of the trust or regulatory basis. Banks will ask what the account is for, a trust deed for an express trust, or the firm's regulatory permissions and applicable client money rules for business accounts.
• Correct titling and designation so the account is identifiable as holding trust or client money.
• The bank's acknowledgement (where rules require it) that it holds the funds on the stated basis and waives set-off rights against them.
• Registration and tax. Most express trusts must register with HMRC's Trust Registration Service, and trustees are responsible for the trust's tax affairs. Business client money arrangements follow the applicable regulatory reporting instead.
• Ongoing reconciliation between the account balance and the underlying records of whose money it is.

Frequently asked questions

Who owns the money in a trust account?

The beneficiary owns it beneficially; the trustee holds legal title and controls the account. The trustee must use the money only in the beneficiary's interest and cannot treat it as their own.

Is money in a trust account protected if the firm holding it fails?

Money properly held on trust does not form part of the failed firm's estate. It belongs to the beneficiaries or clients and falls to be returned to them. That is not the same as a guarantee of full recovery: if the segregated money is short of what the records say is owed, clients generally share the pool pro rata and rank as unsecured creditors for the balance, and the costs of distributing the pool may be met from it. Delays are common. The quality of segregation and record-keeping matters enormously here, which is why regulated regimes set detailed rules for both.

Are trust accounts covered by the FSCS?

Deposits in UK bank accounts, including trust and client accounts, can be covered by the Financial Services Compensation Scheme if the bank holding the account fails. For accounts held on trust, the FSCS may look through to the beneficiaries and treat each as a separate depositor where they are absolutely entitled to identified sums; where beneficiaries are not absolutely entitled, for example under a discretionary trust, the trust is generally treated as a single depositor, subject in each case to FSCS rules and limits. This protection is about the bank failing; protection against the trustee or firm failing comes from the trust structure itself.

What is the difference between a trust account and a trust fund?

A trust fund is the pool of assets held in a trust, which can include property, investments and cash. A trust account is the bank account used to hold the cash element of a trust, or to hold client money on trust.

Do trust accounts pay interest?

They can. Whether interest is paid, and who receives it, depends on the account's terms and the applicable rules. In regulated client money contexts, the rules or the firm's terms of business typically address how interest is treated. Interest earned on trust money generally belongs to the trust or the client, not the trustee, unless properly agreed otherwise.

Does a trust account need to be registered with HMRC?

Most UK express trusts must be registered with HMRC's Trust Registration Service, and a trust with a UK tax liability will generally need to register regardless. A number of exclusions apply, so the position turns on the type of trust and what it holds. Client money held by regulated firms under regimes such as the SRA rules or CASS follows its own regulatory framework rather than trust registration. Trustees unsure of their position usually take advice; registration obligations sit with the trustees.

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