Discretionary trust beneficiaries

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

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

This guidance 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 he is 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, he receives it because he has become entitled to that income upon the exercise of the trustees’ discretion. Therefore, the source of the beneficiary’s income is the trust itself. This contrasts with the position of a beneficiary of an interest in possession trust who is treated as deriving his income from the trust property. See the Interest in possession beneficiaries (IT) guidance note.

Drummond v Collins 6 TC 525 (subscription sensitive)

The rule in Drummond applies to trusts where the beneficiary does not have title to the income as it arises, for example, where:

  • he is a beneficiary of a discretionary trust
  • the trustees have a power to accumulate income, or withhold / divert income away from a beneficiary (

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