Discretionary trusts—income tax
Produced in partnership with Paul Davies of Clarke Willmott
Discretionary trusts—income tax

The following Private Client guidance note Produced in partnership with Paul Davies of Clarke Willmott provides comprehensive and up to date legal information covering:

  • Discretionary trusts—income tax
  • The calculation of taxable income
  • Deductions from taxable income
  • Rates of tax
  • Income belonging to other persons
  • Income used to pay trust management expenses (TMEs)
  • The standard rate band
  • The calculation of income tax

This Practice Note sets out the general principles of income tax that apply to discretionary trusts, and any trusts where income may be accumulated. The income of such trusts does not belong to any individual until it is distributed to a beneficiary at the discretion of the trustees. Consequently, while the income belongs to the trustees, it is taxed at special trust rates. If and when the income is paid out to beneficiaries, there are mechanisms to adjust the rate of tax suffered to the appropriate rate for the beneficiary. See Practice Notes: Taxation of discretionary and accumulating trusts—the tax pool and Discretionary trust beneficiaries—income tax.

Click here for a Proforma—income tax computation (discretionary trusts) template.

Trustees are together treated as if they were a single person, distinct from the individuals who are the trustees of the trust from time to time.

Where there is more than one trustee, it is usual for one of the trustees, known as the 'principal acting trustee', to deal with HMRC. The actions of the principal acting trustee are treated as actions of all the trustees.

All the trustees of a trust are jointly liable for any tax due, not just a share of it. As a result, HMRC can recover any tax or interest on tax from any trustee, if the principal acting trustee doesn't pay or pays