Discretionary trust beneficiaries—income tax
Discretionary trust beneficiaries—income tax

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Discretionary trust beneficiaries—income tax
  • The source of a beneficiary's income
  • The calculation of taxable income and income tax

FORTHCOMING CHANGE: As originally announced at Autumn Budget 2017 and followed up by written statement after Spring Statement 2018, plus an announcement in Budget 2018, the government ran a consultation on the taxation of trusts from 7 November 2018 to 28 February 2019, inviting views on the principles of transparency, fairness and simplicity that it believes should underpin the taxation of trusts. In response, in July 2019, the Office of Tax Simplification issued its second report on inheritance tax. See also the report published by the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness in January 2020 recommending the adoption of a new inheritance tax regime. See also the research exploring the use of trusts which was also published on 7 November 2018. See News Analysis: Exploring the consultation and review on the taxation of trusts.

This Practice Note deals with the main principles of income tax that apply to the beneficiary of a discretionary trust.

An individual will be charged to income tax only where they are entitled to, or receives, income from a taxable source. As a beneficiary of a discretionary trust the source of income is from the discretionary trust itself.

The source of a beneficiary's income

Where a beneficiary receives income from a discretionary trust they receive it because they have become entitled to that income on