How Can We Prepare to Mitigate the Tax Risks of Trust Structures and for the Expected Tax Audits?

Trust asset management (Hungarian: bizalmi vagyonkezelés, or BVK) has become one of the defining tools of family wealth planning in Hungary in recent years. Numerous business owners and high-net-worth individuals have used this structure for succession planning, asset protection, or long-term wealth management purposes. The popularity of BVKs is understandable: when properly structured, they provide a framework for families or entrepreneurial groups to consciously manage the future of their wealth over the long term, while ensuring that asset management and asset protection are carried out within a clear legal framework.

The tax law amendment proposal submitted on 17 July 2026 may introduce significant changes to the personal income tax treatment of trust asset management structures. The reassuring news is that there is no need to rethink every existing trust structure; however, the importance of documentation and asset tracing will increase substantially.

The key message of the proposed changes is that the previously favorable tax treatment of income derived from BVKs will be placed on a new footing. In the future, it will no longer be sufficient to examine what asset is being distributed. It will also be necessary to demonstrate how the distributed asset is economically connected to the originally settled assets, and to show a tax-transparent and economically justifiable chain from the original contribution of assets through to the beneficiary. The planned tax treatment would be aligned with this principle.

At the same time, the proposal would not only amend the substantive tax rules but would also significantly reshape the framework of tax authority audits. Under the proposal, the Hungarian Tax Authority (NAV) would first review trust structures and private foundations established before 12 September 2023, and from 1 January 2028 a mandatory tax audit would need to be conducted for all trust structures and private foundations within the statute of limitations period applicable to tax assessments. This clearly indicates that lawmakers intend to treat trust structures as a priority area for tax scrutiny in the future.

What Will the Changes to the BVK Rules Mean in Practice?

One of the key features of the current framework is that, provided certain conditions are met, both the initial settlement of assets into the trust and the distribution of assets to beneficiaries after five years may be tax exempt.

The new approach, by contrast, places greater emphasis on ensuring that the originally settled assets do not disappear from the scope of taxation through successive transformations and revaluations. In other words, it focuses on tracking both the appreciation embedded in the assets at the time of settlement and the subsequent movement and transformation of those assets. The tax consequences at the time of distribution would also be determined accordingly.

Under the proposed rules, particular importance may be attached to:

• what asset was originally transferred into the BVK and when;
• the value at which it was recorded;
• whether any sale, restructuring, or transformation took place subsequently;
• whether newly acquired assets were financed through mixed sources (i.e., from multiple prior assets);
• what new assets were created and at what value;
• whether an economic connection exists between the original assets and the assets subsequently held or distributed.

Put differently, the “history” of the assets may become one of the central aspects of tax analysis.

The Good News: Properly Established BVKs Remain Valuable Planning Tools

It is important to emphasize that the proposed rules do not call into question the legitimacy of BVK structures that were established for genuine business, succession, or family wealth planning purposes and in compliance with applicable laws.

Trust structures may continue to be appropriate tools for:

• preserving family wealth over the long term;
• supporting generational transitions;
• structuring complex entrepreneurial assets;
• ensuring that wealth management decisions are implemented within an orderly governance framework.

The proposed changes primarily affect the level of evidence and substantiation required for asset movements and related tax treatment, rather than the continued existence of lawfully established structures.

The Less Favorable News: The Previously Simpler Distribution Logic May No Longer Be Sufficient

The most significant practical impact is likely to arise in structures where substantial transformations of assets have occurred since the original settlement.

For example:

1. A business interest was transferred into a BVK.
2. The business interest was later sold.
3. The sale proceeds were used to acquire new investments, contributed in kind, or exchanged in a tax-favored share-for-share transaction.
4. Subsequently, a different asset is distributed to the beneficiary.

In the future, it may no longer be sufficient to demonstrate merely that “the value distributed from the BVK forms part of the trust capital.”

Authorities may also examine what appreciation is attributable to the originally settled assets throughout the various sale, restructuring, exchange, or transformation transactions, and how that value ultimately manifests itself in the assets later distributed.

What Should Be Done Now?

• Review the Completeness of the Original Settlement Documentation

Ensure that all documentation relating to the original transfer of assets into the BVK is complete and readily available.

• Compare the Original and Current Asset Portfolio

It is advisable to prepare an asset movement map showing how assets have evolved from the original settlement date to the present.

• Analyze Planned Future Distributions

Before any future distributions are made to beneficiaries, it is recommended to assess:

• whether the same asset is being distributed as originally transferred;
• whether the asset has undergone transformation or restructuring;
• what tax consequences may arise.
• Pay Special Attention to Family Holding Structures

Particularly affected structures may include those involving:

• operating businesses;
• holding companies;
• ownership arrangements spanning multiple generations that have been settled into a BVK, or where ownership interests have been reorganized through share exchanges or contributions in kind.

In these situations, maintaining detailed records of transactions and business decisions will be especially important.

Preparing for Potential NAV Audits

In addition to addressing the new substantive requirements, it would be prudent to begin preparing now for potential NAV audits. Based on the legislative proposal, the tax authority is expected to review not only the current asset position of a trust but also the entire lifecycle of the assets. As part of such examinations, NAV may seek to verify:

• the timing and circumstances of the original asset settlement;
• the substantiation of acquisition and entry values;
• documentation supporting sales, contributions in kind, share exchanges, and reinvestments;
• the manner in which assets distributed to beneficiaries can be traced back to the original settlement.

This may be particularly relevant in structures where significant restructuring has occurred following settlement, where multiple successive transactions have been undertaken, or where partial distributions have been made over time. In short, under the proposed framework, the ability to demonstrate a clear and well-documented economic and tax trail from the original settled assets through to the assets ultimately distributed may become a critical element of both tax compliance and audit readiness.