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TAXATION OF TRUSTS, SETTLEMENTS AND ESTATES IN NIGERIA (2025): A COMPLETE GUIDE UNDER THE NEW NIGERIA TAX ACT

Trusts have long been recognised as powerful legal and financial tools for managing wealth, protecting assets, and ensuring continuity across generations . The enactment of the Nigeria Tax Act (NTA) 2025 marks a decisive shift in how these structures are treated within Nigeria’s tax framework . The new provisions are not merely technical; they are strategic, designed to ensure that trust structures do not become vehicles for tax leakage, income diversion, or opacity .

The Act significantly restructures the taxation of trusts, settlements, and estates, closing long-standing loopholes and establishing clearer rules on how income is computed, attributed, and taxed . This comprehensive guide examines the taxation of trusts, settlements, and estates under the NTA 2025, covering the legal framework, tax treatment of different parties, compliance requirements, and strategic considerations.

The Pain Points: Why Trust Taxation Matters Now More Than Ever

The “Offshore Is Safe” Myth

Many wealthy Nigerians have historically believed that offshore trusts and settlements could shield their wealth from Nigerian tax authorities. Section 16 of the NTA 2025 closes that gap definitively. The income of an individual, trustee, or executor from a settlement, trust, or estate—whether made, created, or administered in or outside Nigeria—must be ascertained in accordance with the Fifth Schedule to the Act . Geography is no longer a barrier. As one tax expert noted, “Whether your trust is in Lagos or London, whether your estate is managed here or abroad, the income must be ascertained under the Fifth Schedule. You can’t hide behind geography” .

The Capital Gains Rate Increase

A fundamental change under the NTA 2025 is the elimination of the separate 10% capital gains tax regime. Gains within trusts are no longer shielded by the 10% CGT rate. They are now treated as ordinary income and could be taxed at marginal rates of up to 25% . Kelechi Ibe, co-founder of Taxstream, explained: “While they used to be structuring arrangements to tax certain income as capital gains at a lower rate of 10%, that structuring is now impacted because there is no separate regime for capital gains anymore. Every gain from the disposal of an asset is now taxed as income tax” .

The Trustee’s Personal Liability

Trustees now bear primary responsibility for computing, reporting, and paying tax on trust income . The trustee will be answerable for everything that relates to the trust . Failure to comply with the rules may expose the trustee to penalties, interest, and personal liability in certain circumstances .

The Look-Through and Attribution Rules

Where a settlor retains control over a trust—through powers of revocation, entitlement to income, or other mechanisms—the income of the trust may be taxed directly in the hands of the settlor . This rule is designed to prevent artificial income splitting and ensure that tax liability cannot be avoided through family or trust arrangements that lack genuine economic separation . Revocable trusts, where the settlor retains power to cancel the arrangement, could see income attributed directly to the settlor . “In those instances, any income earned by the trust is basically seen as income earned by the settlor for tax purposes,” explained David Apaflo, managing partner at Shells Professional Services .

What Are Trusts, Settlements, and Estates?

Trusts

A trust refers to a fiduciary arrangement where a settlor transfers assets to a trustee, who holds and manages those assets for the benefit of designated beneficiaries . The defining feature of a trust is the separation between legal ownership and beneficial enjoyment. The trustee holds legal title to the trust assets and is responsible for their management, while the beneficiaries are entitled to benefit from those assets .

Settlements

A settlement is an arrangement where property is transferred for the benefit of designated beneficiaries . This is a broader concept that encompasses trusts but can also include other arrangements for the disposition of property.

Estates

An estate refers to the assets of a deceased person being managed during the probate administration process . The legal framework governing estates includes the Administration of Estate Laws (State Laws) and common law principles .

Legal Framework

In Nigeria, the legal framework governing trusts is derived from a combination of common law principles, the terms of trust deeds, and statutory provisions such as the Trustee Investment Act, Administration of Estate Laws (State Laws), the Companies and Allied Matters Act (CAMA), and applicable Securities and Exchange Commission (SEC) regulations . In practice, the trust deed is the primary governing document, while statutory provisions and common law principles interpret, validate, and in some cases override its terms .

The Legal Framework: Section 16 and the Fifth Schedule

Section 16 of the NTA 2025

Section 16 of the Nigeria Tax Act 2025 provides the foundational rule for the taxation of trusts, settlements, and estates. It states that:

“The income of an individual, a trustee or executor from a settlement, trust, or estate of a deceased person, made, created or administered in or outside Nigeria, shall be ascertained in accordance with the provisions of the Fifth Schedule to this Act” .

Scope of Application

The provision applies to individuals, trustees, and executors who derive income from:

Settlements (arrangements where property is transferred for beneficiaries)
Trusts (legal structures where trustees hold assets for beneficiaries)
Estates of deceased persons (assets managed during probate)

Geographical Scope

The rules apply to both domestic and foreign arrangements—inside or outside Nigeria . This significantly expands the reach of Nigerian tax authorities, making offshore trusts and foreign estates subject to Nigerian tax rules.

The Fifth Schedule: Detailed Rules

The Fifth Schedule provides detailed rules on how income is calculated, including:

Attribution of income to beneficiaries
Treatment of distributions vs. retained earnings
Rules for offshore trusts and estates

Policy Rationale

Section 16 and the Fifth Schedule serve several key policy objectives:

Prevent tax avoidance through offshore trusts or settlements
Ensure equity: beneficiaries of estates or trusts are taxed similarly to direct income earners
Align Nigeria with global practices on taxing cross-border wealth transfers

Tax Treatment of Income from Trusts and Estates

General Principle

Income from trusts and estates is not exempt; it must be assessed under Nigerian law . The Act makes clear that the existence of a trust does not automatically remove tax consequences from the Settlor .

Treatment of Capital Gains

A fundamental change under the NTA 2025 is the elimination of the separate 10% capital gains tax regime for trusts. Capital gains earned within trust structures are no longer taxed separately at 10%. They are treated as ordinary income .

New Treatment: Gains within trusts are now treated as ordinary income and could be taxed at marginal rates of up to 25% depending on the beneficiary’s income level .

Impact: For families holding shares, real estate, or other appreciating assets in trust, marginal rates could rise to 25% depending on the beneficiary’s income level . This represents a significant increase in tax exposure for many trust structures.

Treatment of Offshore Trusts and Estates

The new law includes tighter residence, source, and attribution rules . The Act allows the tax authority to scrutinize any income linked to Nigeria, whether it is held at the trustee level or distributed to beneficiaries . The tax authorities can disregard arrangements set up mainly to avoid tax. “The tax authorities can set aside any trust structure they feel the sole purpose was to evade taxes,” explained David Apaflo .

Double Taxation Concerns

Offshore trusts may face taxation both abroad and in Nigeria . While the framework includes rules to reduce double taxation through apportionment and foreign tax credits, cross-border arrangements may still require careful review . Cross-border tax exposure may arise where there are no effective agreements to prevent double taxation .

The Fifth Schedule: Residual Income Rules

Defining Residual Income

Residual income is the portion of income left after all distributions, payments, and apportionments have been made . It refers to the unapportioned or undistributed portion of the computed income of a trust, settlement, or estate at the end of a tax year .

When Residual Income Arises

Residual income arises in situations where:

The trustee or executor, after meeting all obligations (expenses, annuities, and distributions), still has a surplus of income remaining
The deed of trust or will does not specify full distribution of income to beneficiaries within the accounting period
Certain income or gains are retained to preserve the estate or trust fund for future use

Computation of Residual Income

Before arriving at residual income, the total income of the trust or estate must first be computed in line with Paragraph 3 of the Fifth Schedule . This involves:

Determining total income for the year, including rents, dividends, business income, and other receipts
Deducting authorized expenses of the trustee or executor
Deducting any fixed annuities or annual payments directed by the deed or will
Adjusting income from trades, businesses, or property in accordance with the relevant provisions of the NTA

Tax Treatment of Residual Income

Paragraph 4(c) of the Fifth Schedule provides that:

“Any remainder of the computed income of a settlement, trust or estate of any year after deducting all amounts apportioned to beneficiaries… shall be apportioned to the trustee or executor for assessment in his name as trustee of the settlement or trust or as executor of the estate” .

Key Principles:

Tax Liability: The trustee or executor bears the legal responsibility to file tax returns and pay tax on the residual income .
Rate of Tax: The residual income is taxed as if it were income of an individual taxpayer, applying the same tax rates and rules under the NTA .
Timing of Assessment: The income is assessed in the tax year in which it arises .

Implications for Trustees and Executors

Trustees and executors must maintain clear records of income, expenses, and distributions to accurately determine what constitutes residual income . They bear the legal responsibility to file tax returns and pay tax on residual income .

Obligations of Trustees, Settlors, and Beneficiaries

Trustees

Under Nigeria’s tax framework, a trust is generally recognised as a separate taxable arrangement, with the trustee positioned as the first point of contact for tax purposes . The trustee will be answerable for everything that relates to the trust .

Key Obligations:

Compute income earned by the trust, including income from all sources, whether local or foreign .
Maintain proper records of trust income and expenses .
File tax returns on trust income, whether distributed or retained .
Account for tax on income arising within the trust .
Disclose the terms of the trust to the tax authorities when requested .
Make fuller disclosures, including beneficial ownership details, distributions, and foreign assets .

Liability:

Trustees are responsible for ensuring correct reporting and proper allocation of income among beneficiaries .
Failure to comply may expose the trustee to penalties, interest, and personal liability in certain circumstances .
Gains from asset disposals by trustees are attributed to the beneficial owner, but the trustee remains responsible for proper reporting .

Settlors

The settlor rules have changed significantly under the NTA 2025. A key anti-avoidance feature is the adoption of a robust “look-through” rule .

Look-Through Rule:

Where a settlor retains control over a trust (through powers of revocation, entitlement to income, or other mechanisms), the income of the trust may be taxed directly in the hands of the settlor .
The rule also applies where income is paid to an unmarried minor child above the national minimum wage .
In situations involving multiple settlors, income is attributed in proportion to each settlor’s contribution .

Purpose: These provisions are designed to prevent artificial income splitting and ensure that tax liability cannot be avoided through family or trust arrangements that lack genuine economic separation .

Structures Under Scrutiny:

Revocable trusts, where the settlor retains power to cancel the arrangement .
Structures where the settlor maintains substantial control .
Any structure where the settlor continues to enjoy benefits from the trust income .

Beneficiaries

Beneficiaries are taxed based on their rights and actual benefits under the trust .

Fixed Beneficiaries:

Taxed on their allocated share of trust income .

Discretionary Beneficiaries:

Taxed only when distributions are actually made to them .

General Principle:

Any income distributed is taxed in the hands of the beneficiary .
Undistributed income remains taxable on the trustee .

Foreign-Sourced Income:

Where trust income is sourced from outside Nigeria and distributed to beneficiaries, the Acts provide for proportional relief to mitigate double taxation .
With Nigerian residents now taxed on worldwide income, distributions from offshore trusts, foreign accounts, or overseas assets are no longer beyond the reach of Nigerian tax authorities .

Estate Administration and Probate

Inheritance Is Not Taxed, but Related Income Is

Nigeria does not impose a standalone inheritance tax, and that remains unchanged under the new law . However, inherited property is not entirely tax-free. Income linked to inherited assets and gains from their eventual disposal may still be taxed . The principle, as noted by Andersen in their article Family Wealth Transfers and the Nigeria Tax Act 2025, is that “inheritance is no longer just about who gets what, but also about what the tax authority gets first” .

Tax Treatment of Income During Probate

The law provides clearer guidance on how income generated after death is treated :

Income received after death is deemed to accrue to the deceased .
Income generated during estate administration is taxed in the hands of the executor or allocated to beneficiaries .

Practical Implications:

Rental income or other earnings from property before distribution may be subject to tax .
Executors are responsible for settling both the deceased’s final tax liabilities and any income earned during the administration period .
Delays in probate can increase tax exposure, as estate income remains taxable until assets are distributed .

Executors’ Responsibilities

The role of executors is becoming more demanding . They are expected to:

Identify outstanding tax liabilities of the deceased .
Keep records of income generated during probate .
Engage with tax authorities before assets can be transferred .
File returns on estate income during probate .

Capital Gains on Inherited Property

Inheritance itself does not trigger Capital Gains Tax, but the tax applies when inherited property is eventually sold . The law provides clearer guidance on how gains should be calculated. In many cases, the value of the property at the time of inheritance can be used as the base cost, rather than the original purchase price by the deceased . This reduces uncertainty around the taxation of inherited property and limits the risk of unexpected tax bills when beneficiaries decide to sell .

VAT Changes for Inherited Property

The NTA 2025 provides some relief for property transfers. VAT is no longer applicable to land and building transactions, including transfers of inherited property . The cost of transferring inherited property is expected to decline as a result .

Other Charges Remain:

Stamp duties still apply .
Title registration fees and consent charges still apply and are administered at the state level .

Cross-Border Considerations

Families with assets or beneficiaries in different countries may face more complex tax outcomes . The treatment of inherited income depends on where individuals are resident and where the income is generated. Someone living in Nigeria may need to account for income from inherited assets abroad, while a non-resident may still be taxed on income linked to property located in Nigeria . This overlap can expose the same income to tax in more than one jurisdiction, particularly where there are no effective agreements to prevent double taxation .

Anti-Avoidance Provisions

General Anti-Avoidance Rules

The NTA 2025 strengthens the ability of tax authorities to challenge arrangements designed primarily to reduce tax liabilities . This includes:

Undervalued transfers made before death .
The use of offshore entities .
Any trust structure where the sole purpose was to evade taxes .

Look-Through Rules for Trusts

The Fifth Schedule provides that income arising from a trust may be deemed to be the income of the Settlor where the Settlor retains significant control over the trust assets, continues to enjoy benefits from the trust income, or where the trust remains revocable in a manner that permits the Settlor to regain control .

Attribution Rules

The law includes tighter residence, source, and attribution rules, meaning tax authorities will scrutinize any income linked to Nigeria, whether it’s held at the trustee level or distributed to beneficiaries .

Substantial Control

Where the settlor retains substantial control over the trust, income may be attributed directly to the settlor for tax purposes .

Strategic Considerations for Families

Review Existing Trust Structures

Families with existing trusts should review their deeds, particularly the powers retained by settlors and how transactions within the trust are structured . “The changes that will happen for each trust depend on the unique provisions in the deed, but the powers the settlor still has over the trust are one very important area to look at” . Families with legacy structures not yet reviewed under the new regime should consider whether a proactive review is appropriate before an audit is initiated .

Ensure Genuine Separation

For a trust to achieve its intended objectives under the new regime, it must demonstrate genuine separation between the Settlor and the trust assets . Key elements include:

Independently exercised trustee powers
A properly constituted oversight mechanism
Distribution decisions that are genuinely discretionary rather than predetermined
The trust deed must be properly drafted to reflect the separation of powers and the independent status of the trust

Consider the Attribution Risk

If the Settlor continues to exercise substantial control over the trust, the look-through rules may apply. The central question is whether the trust structure genuinely breaks the chain of control, or whether the economic substance of the arrangement means the Settlor remains the beneficial recipient of the income .

Cross-Border Tax Planning

Double tax treaties become especially important under the new framework because they can preserve returns on dividends, interest income, and cross-border investments when properly applied. Claiming benefits under Nigeria’s double tax treaties can help reduce withholding tax exposure and prevent the same income from being taxed both abroad and in Nigeria.

Engage Professional Advisers

The new framework demands informed decision-making and ongoing compliance . Trustees, settlors, and beneficiaries must now engage more deeply with the tax implications of their arrangements, ensuring that trusts achieve their intended objectives without creating unintended fiscal exposure . Professional advisers can help review existing structures, recommend modifications, and ensure compliance.

How Qeeva Advisory Helps with Trust, Settlement and Estate Taxation

At Qeeva Advisory, we understand that navigating the taxation of trusts, settlements, and estates under the NTA 2025 can be complex. Our team of experienced professionals helps individuals, families, trustees, and executors understand their tax obligations and structure wealth transfer arrangements efficiently.

Our Core Services

Advisory Services Nigeria – Our advisory professionals help you understand your obligations under the NTA 2025, review trust structures, and develop compliance strategies.

Tax Strategies and Planning – We help you structure trusts, settlements, and estates to optimize tax outcomes while ensuring compliance.

Regulatory Compliance – We ensure your trust and estate arrangements meet all filing and reporting requirements under the NTAA 2025.

Bookkeeping Services – Accurate records are essential for trust and estate compliance. Our bookkeeping services ensure your financial records are accurate and complete.

Risk Management – We help you identify and manage risks associated with trust and estate taxation, including compliance risks and tax exposure.

Frequently Asked Questions

Q: What is the tax treatment of trusts under the NTA 2025?
A: A trust is generally recognised as a separate taxable arrangement, with the trustee positioned as the first point of contact for tax purposes. Income earned by a trust is assessed in the hands of the trustee in their representative capacity, and this includes income from all sources, whether local or foreign .

Q: Are offshore trusts still tax-free in Nigeria?
A: No. Section 16 of the NTA 2025 explicitly covers trusts, settlements, and estates “made, created or administered in or outside Nigeria” . This means offshore trusts are now subject to Nigerian tax rules .

Q: What is the look-through rule for trusts?
A: Where a settlor retains control over a trust—through powers of revocation, entitlement to income, or other mechanisms—the income of the trust may be taxed directly in the hands of the settlor. The rule is designed to prevent artificial income splitting and ensure that tax liability cannot be avoided through family or trust arrangements .

Q: Are capital gains in trusts taxed at a lower rate?
A: No. The NTA 2025 eliminates the separate 10% capital gains tax regime. Gains within trusts are now treated as ordinary income and could be taxed at marginal rates of up to 25% depending on the beneficiary’s income level .

Q: Who is responsible for paying tax on trust income?
A: The trustee bears the legal responsibility to file tax returns and pay tax on trust income. Undistributed income remains taxable on the trustee. Distributed income is taxed in the hands of the beneficiary .

Q: Is inheritance taxed in Nigeria?
A: No. Nigeria does not impose a standalone inheritance tax. However, income linked to inherited assets and gains from their eventual disposal may still be taxed .

Q: What is residual income of a trust?
A: Residual income is the portion of income left after all distributions, payments, and apportionments have been made. It is taxed in the hands of the trustee or executor .

Q: What are the anti-avoidance provisions for trusts?
A: The NTA 2025 allows tax authorities to disregard arrangements set up mainly to avoid tax. Trusts may be set aside if their sole purpose was to evade taxes .

The Bottom Line

The NTA 2025 has fundamentally changed the taxation of trusts, settlements, and estates in Nigeria. The reforms bring both challenges and opportunities.

Key Takeaways:

Understand Section 16: The income of an individual, trustee, or executor from any trust, settlement, or estate—whether in or outside Nigeria—must be ascertained under the Fifth Schedule .

Know the Capital Gains Change: Capital gains within trusts are no longer taxed at 10%. They are treated as ordinary income and can be taxed at up to 25% .

Trustees Have New Obligations: Trustees must file returns on trust income, maintain proper records, and disclose beneficial ownership details and foreign assets .

Look-Through Rules Apply: If a settlor retains control, the income may be taxed directly in the hands of the settlor .

Inheritance Is Not Taxed, but Related Income Is: Income from inherited assets and gains from their disposal may still be taxed .

Cross-Border Arrangements Face Scrutiny: Offshore trusts and foreign estates are now within the tax net .

Your job is to be prepared. Understand the new rules. Review existing trust structures. Ensure genuine separation between settlor and trust. Maintain proper documentation. File returns on time. Seek professional guidance.

With the right approach and the right partner, you can turn trust, settlement, and estate tax compliance from a potential burden into a manageable and transparent process.

Reference Links / Sources

Andersen Nigeria – Trusts as Wealth Preservation Tool – Comprehensive overview of trust taxation under NTA 2025, including trustee obligations and wealth preservation considerations

BusinessDay – How tax law reshapes property inheritance – Inheritance tax treatment, probate income, CGT on inherited property, and cross-border considerations

Fiduciary Services – Trust Taxation Guide – Detailed guidance on trustee, settlor, and beneficiary obligations under NTA 2025

AO2 Law – Residual Income of Trusts and Estates – In-depth analysis of Paragraph 4(c) of the Fifth Schedule and residual income taxation

BusinessDay – Trust income taxed up to 25% – Analysis of capital gains rate increase, look-through rules, and compliance implications for trustees

1st Fiduciary – Family Office Tax Planning – Strategic considerations for wealthy families, anti-avoidance provisions, and attribution rules

LinkedIn – Section 16 NTA 2025 Analysis – Clause-by-clause analysis of Section 16 and scope of application

DLA Piper – Real Estate Tax in Nigeria – VAT exemption on property transactions and stamp duty requirements

Let’s Talk About Your Trust and Estate Tax Needs

Navigating the taxation of trusts, settlements, and estates under the NTA 2025 can be complex. At Qeeva Advisory, we understand the challenges faced by individuals, families, trustees, and executors in understanding their tax obligations and structuring wealth transfer arrangements efficiently.

Whether you need help with trust review, compliance, or tax planning, we are here to support you.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: info@qeeva.com

📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a consultation. Let us help you navigate trust and estate taxation with confidence.

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