Tax rules governing Hungarian trusts set for significant change

Legislation awaiting official publication will substantially reshape the tax environment applicable to Hungarian trust arrangements and private foundations.

End of tax exemption and introduction of tax deferral

The most significant technical change is that, in respect of assets placed into management after 31 August 2026, the current five-year tax exemption rule will cease to apply on a prospective basis. The difference between the contribution value and the revalued value – i.e. the increase in asset value – will no longer become automatically tax-exempt merely by the passage of time. Instead, a general tax-deferral mechanism will take effect: neither the contribution of assets nor transactions within the managed estate will, of themselves, give rise to an immediate tax liability. Tax charges will become payable only when the beneficiaries receive the capital and accumulated returns.

It should be noted, however, that tax-free inheritance will continue to be available to family members following the death of the settlor, and structures established earlier may, subject to specified conditions, partially retain their existing preferential treatment.

Tightened distribution rules and new administrative burdens

The amendments also introduce a strict ordering regime for distributions, particularly where the beneficiary does not receive back the original contributed asset. In such cases, the distribution is treated first as arising from accumulated returns, then from the increase in the value of the contributed assets – both of which are taxed as dividends – and only the residual portion may qualify as a tax-free capital distribution.

A further material point is that, where crypto-assets are contributed to a Hungarian trust, conventional revaluation will no longer be available. In addition, the bill imposes a new annual reporting obligation on trusts, who will be required, from spring 2027 onwards, to submit detailed reports to the tax authority on the recorded value of the managed estate and on value increases.

Mandatory authority reviews

In the interests of transparency and compliant conduct, every Hungarian trust relationship and private foundation will in future be subject to a mandatory tax authority with a particular focus on the substance of the arrangements. Beyond formal and legal compliance, the authority will examine in depth the underlying economic and succession-planning objectives of the structure, the content of the relevant contracts, and the relationships between the parties concerned. Reviews will first cover arrangements established before September 2023 – including those that have since been terminated – and, from January 2028, later-established arrangements will also be reviewed within the limitation period.

In the new environment it will be of particular importance that contracts, decision-making mechanisms and founding objectives are properly documented and capable of being credibly substantiated to the authority. Considering this, an early, comprehensive review of the operation and documentation of existing structures is recommended.

Should you have any questions regarding the above, please feel free to contact our expert colleague.