Making use of the tax pool
Making use of the tax pool

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

  • Making use of the tax pool
  • Dividends
  • Standard rate band
  • Changes in tax rates
  • The beneficiary's tax position
  • Keep a record of available income
  • Distinction between undistributed and accumulated income
  • Use the tax pool before it expires
  • Minimise the effect of high rates of tax on trust income
  • Choice of investments
  • more

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.

The tax pool is a record of the tax paid from year to year by the trustees of a discretionary trust, which funds the tax credits available to the beneficiaries. If the tax credits on distributions to beneficiaries exceed the amount available in the tax pool, an additional charge is made on the trustees under sections 496–498 of the Income Tax Act 2007 (ITA 2007).

This Practice Note explains the effect of the mismatch between the rates of tax on trust income and the beneficiaries' tax