“Hungarian Trust” – Changes Effective 31 August 2026

Several provisions related to Trust Asset Management (so called: Hungarian Trust) (BVK) will be amended, significantly limiting the tax advantages previously associated with the structure. The purpose of the modifications is to ensure that, while the fundamental goal of trust asset management remains unchanged, its taxation becomes more transparent and consistent. In other words, the protection of assets and the controlled transfer of wealth upon death should return to the forefront, and any potential tax benefit should be a consequence rather than the primary motivation for using the structure.

No Input Taxation

The core of the new tax regulation is that asset transfers will continue not to trigger tax liability, meaning that the former system of input taxation will not be reinstated. The rules governing asset transfers remain essentially unchanged, although two new provisions have been introduced regarding the act of settling assets into the trust. One of these states that no asset‑value increase may be established when a crypto asset is transferred into a trust or into the ownership of a private foundation. The other new rule concerns beneficiary share‑for‑share exchanges that were previously tax‑exempt: if such a share is transferred, the asset‑value increase must be determined based on the difference between the accounting value and the acquisition value defined under the Personal Income Tax Act.

Taxation Upon Distribution or Realisation

Tax liability may still arise either when the asset is distributed to the beneficiary or when the beneficiary later disposes of the received asset and realises income. The distinction depends on the form of the distributed asset. If the asset is distributed in the same form as it was originally settled into the trust, the distribution itself remains tax‑free, and tax liability only arises when the beneficiary realises income from the asset (for example, by selling it). In contrast, if the asset has undergone a change in form, the moment of distribution itself becomes a taxable event. This may occur, for example, when a bond was originally settled into the trust, but it was sold during the trust period and the beneficiary receives cash instead.

Key Concept – Whether the Asset Has Changed Form

The regulation distinguishes between cases where the beneficiary receives exactly the same asset that the settlor originally contributed and cases where the trustee has already transformed the asset. If the asset is distributed in unchanged form, the distribution is tax‑free, and the previous five‑year holding period no longer applies. “Unchanged form” means that the beneficiary receives the exact same asset, not merely an asset of the same type. In such cases, the beneficiary may only consider the original acquisition value paid by the settlor. According to the statutory example, if the settlor purchased a painting for 50 million HUF, its value was 120 million HUF at the time of settlement, and it is worth 130 million HUF at the time of distribution, the distribution is tax‑free. However, if the beneficiary later sells the painting, they may still only use the original 50 million HUF acquisition value when calculating taxable income.

The situation is different if the trustee transforms the contributed asset, for example by selling it, and the beneficiary receives cash. In such cases, the regulation reintroduces the sequencing rule: the distribution must first be treated as a payout of realised gains, which is taxable as dividend income. Only thereafter may amounts be distributed from the asset‑value increase, which also qualifies as dividend income. Using the earlier example: the settlor purchased an asset for 20 million HUF, it was worth 100 million HUF at settlement, and the trustee sold it for 130 million HUF. The 30 million HUF gain appears in the reserve in the accounting records, while the 80 million HUF asset‑value increase is recorded separately. If the beneficiary receives 40 million HUF, the first 30 million HUF is taxed as dividend income, and the remaining 10 million HUF is also taxed as dividend income, as it is paid from the asset‑value increase. All distributions are treated as dividends until both the reserve and the asset‑value increase are exhausted. Only amounts exceeding these may be considered distributions from the initial capital, which are tax‑exempt. If the distribution is made in the form of an asset rather than cash, the acquisition value of the dividend‑taxable benefit will be the fair market value at the time of distribution.

Rules Similar to Inheritance

The regulation continues to treat inheritance‑like situations as favourable cases. If the settlor, founder or contributor dies and the asset transfer occurs due to this event, no asset‑value increase must be established, and no income must be determined if the beneficiary only acquires ownership after the settlor’s death. In such cases, the beneficiary’s acquisition value will be the fair market value at the time of acquisition.

Reporting Obligations

Compared to the previous rules, trustees and private foundations will face significantly broader reporting obligations. They must not only inform the beneficiary and the tax authority of the acquisition value of distributed assets, but must also file annual reports on the value of the managed assets, the values recorded in the main register, the asset‑value increases, and the closing balance of the separate register. The first such report, covering the 2026 year, must be submitted by the end of March 2027.

Tower Consulting, a Budapest‑based accounting and payroll firm, together with its cooperating partners, remains at your disposal for any accounting, payroll or tax advisory matters in Budapest or anywhere in the country through remote, online channels.