Discretionary trusts ― income tax

Produced by a Tolley Trusts and Inheritance Tax expert
Trusts and Inheritance Tax
Guidance

Discretionary trusts ― income tax

Produced by a Tolley Trusts and Inheritance Tax expert
Trusts and Inheritance Tax
Guidance
imgtext

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

Continue reading the full document
To gain access to additional expert tax guidance, workflow tools, generative tax AI, and tax research, register for a free trial of Tolley+™
Powered by Tolley+

Popular Articles

Wholly and exclusively

Wholly and exclusivelyFor both income tax and corporation tax purposes, one of the fundamental conditions that must be satisfied for an item of expenditure to be deductible, is that it must incurred ‘wholly and exclusively’ for the purposes of the trade, profession or vocation. References to CTA

14 Jul 2020 14:00 | Produced by Tolley Read more Read more

Gifts out of surplus income

Gifts out of surplus incomeA valuable exemption from inheritance tax (IHT) applies to gifts out of surplus income. This exemption applies only to lifetime gifts and is therefore a key part of lifetime planning. The exemption applies to both outright gifts and gifts into trust. Gifts which meet the

14 Jul 2020 11:48 | Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP Read more Read more

Holdover relief for disposals by trustees

Holdover relief for disposals by trusteesOverviewWhere a capital gain has been realised on an asset that has been disposed of and that disposal was not for full value (that is not in an arm’s length sale) then holdover relief may be available. This will happen when trustees appoint capital assets

14 Jul 2020 11:54 | Produced by Tolley Read more Read more