Introduction

This guidance note explains how to calculate the income tax liability on the income of discretionary trusts and any trusts where income may be accumulated. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to discretionary and accumulation trusts.

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).

In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential when dealing with a trust for the first time to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of the two categories:

1. •

   standard rate tax (bare trusts and all interests in possession)

2. •

   trust rate tax (discretionary and accumulation trusts)

The nature of an interest in possession and the income tax treatment