Introduction

The tax liabilities of UK resident beneficiaries of non-resident trusts are governed by a series of ‘tax hierarchy’ rules. See the Tax on UK resident beneficiaries of non-resident trusts (overview) guidance note.

The first step is to establish whether:

1. •

   the beneficiaries’ entitlement under the trust is fixed or discretionary, and

2. •

   any payment is capital or income

The nature of the beneficiaries’ interest will help to determine what type of payment it is. This is discussed further in the Tax on UK resident beneficiaries of non-resident trusts (overview) guidance note.

Payments of and entitlement to income are subject to income tax according to the principles set out in this guidance note.

There are special