Trusts have become increasingly popular in recent years in Hungary as a means of preserving family and business wealth over the long term and transferring it between generations. However, the new tax package adopted following the change of the Hungarian government will also bring significant changes for existing structures: in addition to stricter tax rules, trusts will also become a focus of tax audits in Hungary.
We have already presented the legislative changes in our article on the 2026 Hungarian tax package; this time, we examine what all this may mean in practice for settlors, trustees and beneficiaries. We outline what they can expect during a trust audit by the Hungarian tax authority (NAV), which issues should be clarified before such an audit begins, and how an independent tax review of a trust can help.
What may the NAV examine during a trust audit?
In the first phase, the NAV will examine trusts registered before 12 September 2023, while from 2028 all trusts and private foundations may be subject to targeted audits. The scope of trust audits will be considerably broader than what we have become accustomed to in a conventional tax audit: among other things, the NAV has expressly stated that it will examine:
- the purpose of placing assets into trust,
- the relationship between the parties involved,
- the time elapsed between placing the assets into trust and distributing them,
- the role of the adviser involved in setting up the structure.
Under the Hungarian Act on the Rules of Taxation, the tax authority classifies transactions according to their true substance and may examine whether the requirement of exercising rights in accordance with their intended purpose has been met. In the case of a trust, therefore, in addition to the provisions of the trust deed, it is also important how the trust was operated in practice.
If, for example, the purpose of placing the assets into trust was to transfer the family business to the next generation, it is advisable to review how this is reflected in the beneficiaries’ entitlements and the conditions governing the distribution of assets. The trustee’s decisions and the benefits actually provided must also be consistent with the stated purpose.
Obtaining a tax advantage is not in itself the same as an abuse of rights. Nor does the fact that family members are beneficiaries make the structure questionable in itself. Each transaction must be assessed together with its circumstances, particularly where the assets were sold and distributed shortly after being placed into trust.
Which structures may receive particular attention from the Hungarian tax authority?
The legislation does not provide an exhaustive definition of the structures considered risky. However, based on the circumstances the Hungarian tax authority intends to examine and the changing regulatory environment, the following cases may attract increased attention from the tax authority and may therefore be more likely to face a trust audit:
- assets being placed into trust, sold and distributed within a short period of time;
- assets being placed into trust following a significant revaluation;
- the settlor and beneficiary being the same person;
- significant payments made to beneficiaries within the family;
- revaluation-based structures established between 2023 and 2026;
- transfers of ownership interests of significant value.
Tax treatment of asset distributions: what should the parties concerned examine?
A payment already made or planned may be one of the starting points for the review. In this context, it is advisable to examine:
- the legal title under which the benefit was provided and the assets from which it was financed;
- the value at which the asset was transferred to the trust assets;
- how its subsequent sale was accounted for;
- which documents support the tax treatment of the payment.
The Hungarian Personal Income Tax Act effective from 31 August 2026 contains detailed rules on the determination and record-keeping of increases in asset value. The settlor must also provide the data and documents supporting the acquisition value and the eligible costs. When determining the tax treatment of a cash benefit, the ordering rules applicable to dividends must also be examined: designating a payment as a distribution of capital does not in itself determine the tax liability.
Suppose that a settlor placed an ownership interest into trust, which the trustee subsequently sold before making a payment from the proceeds. In this case, the valuation performed when the asset was placed into trust, the accounting treatment of the sale and the benefit provided to the beneficiary must be reviewed together. Where assets were placed into trust at different points in time, the transitional provisions must also be taken into account to identify the applicable rules.
How can an independent tax review help and what does it include?
An independent tax review can help identify risks and documentation deficiencies that may cause problems during a subsequent trust audit by the tax authority. Accordingly, the review primarily focuses on examining the tax treatment of the existing trust structure and the supporting documentation. It can be used to assess whether the agreements, valuations, accounting records and tax returns are consistent with one another and with the structure’s actual operation. The review may be particularly useful before a significant distribution of assets.
The review includes the following:
- reviewing agreements,
- reviewing the tax treatment of assets placed into trust,
- checking valuation documentation,
- examining asset distributions,
- reconciling accounting records and tax returns,
- identifying risks related to the Hungarian tax authority,
- preparing a written summary report,
- developing an action plan.
The outcome of the due diligence process must therefore also include specific actions:
- obtaining a contemporaneous copy of any missing document,
- reconciling and correcting data in the event of accounting discrepancies,
- presenting the possible positions and consequences where the tax treatment is disputed
may constitute the next step. This also gives the client an overview of which issues can be resolved within a short period of time and where further expert examination is required.
Timing also has procedural significance. If an error in a tax return is identified, the possibility of self-revision may still be examined. Once a trust audit has commenced, this option is no longer available in respect of the tax and period concerned, so it is not advisable to wait for notification from the Hungarian tax authority before making a correction.
Why is it advisable to involve an independent expert?
The adviser involved in setting up the structure is familiar with the background to placing the assets into trust and the original plans. An independent reviewer can supplement this knowledge by independently assessing the previous assumptions and the transactions carried out during the operation of the structure.
This may be particularly important if the previous tax position needs to be amended or if the identified issue also raises questions of liability. The independent expert does not have to assess their own previous work and can therefore recommend the necessary corrections without being affected by prior involvement in setting up the structure.
However, an independent expert opinion does not constitute approval by the tax authority. Its value derives from the facts identified, the supporting documents and the professional reasoning. A summary prepared subsequently can help organise contemporaneous evidence, but it does not in itself prove the original purpose of placing the assets into trust.
The role of tax representation
When contacted by the Hungarian tax authority, the first step is to clarify which taxpayer and which period the audit concerns and what type of procedure has been initiated.
- A tax audit examines the tax base and the amount of tax and results in a period closed by audit.
- A compliance audit may also examine the fulfilment of other tax obligations, data and economic events, but it does not result in such a closed period.
As part of representation before the NAV, the duties of the expert providing tax representation include:
- developing a professional position,
- presenting the evidence appropriately,
- managing procedural deadlines.
When selecting a representative, knowledge of tax authority proceedings is therefore just as important as experience in setting up trusts. The documentation collected and reconciled during the preliminary tax review may provide direct assistance in this regard. During the preparations, it is also advisable to monitor developments concerning the planned wealth tax. However, whether assets held in trust will be specifically affected can only be assessed on the basis of the final rules.
Reviewing existing trust structures and preparing for trust audits may raise tax, accounting and procedural issues alike. As part of an independent tax review of trusts, the experts of WTS Klient Hungary help identify tax risks and determine the necessary measures, while also providing support with representation before the NAV. If you would like to review the tax aspects of your trust structure, please feel free to contact us.
This article is for general information purposes only and should not be considered as advice.
