A major shift in Nigeria’s tax framework is set to significantly impact families who use trusts for wealth preservation and estate planning. Under the Nigeria Tax Act 2025, gains realized within trusts are no longer taxed separately as capital gains. Instead, they are now treated as ordinary income, meaning they form part of total taxable income and may be subject to higher tax rates.
According to reports by BusinessDay NG, capital gains previously enjoyed a flat 10 percent tax rate. However, under the new regime, those same gains can now be taxed at rates of up to approximately 25 percent, depending on the trustee’s or beneficiary’s total income level. This change represents a substantial increase in tax exposure for many families who rely on trusts to manage assets such as shares and real estate.
What This Means for Families and Wealth Planning
For years, trusts have served as structured vehicles for intergenerational wealth transfer and asset protection. By holding appreciating assets within a trust, families could benefit from the lower capital gains tax regime.
With the new classification of trust gains as ordinary income, families may now face significantly higher tax bills. Financial experts warn that this development could reduce the traditional tax advantages associated with estate planning strategies, particularly for high-net-worth individuals and business-owning families.
Compliance and Oversight Are Tightening
Beyond higher tax rates, regulatory oversight is also increasing. Tax authorities now have expanded powers to demand more comprehensive disclosures from trustees. This includes detailed information about beneficiaries, foreign assets, and the overall structure of trust arrangements.
Additionally, revocable trusts where the settlor retains a degree of control may be taxed as though all trust income belongs directly to the settlor. This effectively removes any tax separation between the individual and the trust in such cases.
Broader Context: Tax Reform and Public Confidence
The reform forms part of Nigeria’s broader effort to expand its revenue base and strengthen tax administration. However, the changes have sparked debate about fairness, transparency, and public confidence in the system.
As reported by Punch Newspapers, policymakers acknowledge that rebuilding public trust and improving communication will be critical to ensuring the effectiveness of the new tax framework without generating resistance or resentment among taxpayers.
What Families Should Consider
In light of these developments, families are advised to:
Review existing trust deeds and governance structures carefully.
Examine powers retained by settlors and how distributions are handled.
Assess whether trust income is taxed at the trustee level or attributed to beneficiaries.
Seek professional tax and legal guidance to restructure arrangements where necessary.
As Nigeria’s tax landscape evolves, proactive planning and compliance will be essential to managing the financial impact of these reforms.
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