Commentary

I5.1010 Special trust tax rates

IHT, trusts and estates

I5.1010 Special trust tax rates

Accumulation and discretionary settlements

I5.1010 Special trust tax rates

Accumulated and discretionary income

Higher 'special' tax rates apply to the income of trusts (but not charitable trusts1) where that income is accumulated or is payable at the discretion of the trustees (or any other person)2.

The discretion of the trustees or any other person can relate to one or more of the following3:

  1.  

    (i)     whether, or the extent to which, the income is to be accumulated

  2.  

    (ii)     the persons to whom the income is to be paid, and

  3.  

    (iii)     how much of the income is to be paid to any person

Income is not treated as accumulated or discretionary income, so the special trust rates do not apply, if it is:

  1.  

    (a)     the income of any person other than the trustees before being distributed4. This is the case where, for example, the trustees hold property for the benefit of a minor indefeasibly; the trustees hold the trust property on statutory trusts5 under which they may apply the income at their discretion for the maintenance, education or benefit of the child but the child is taxable on the income even where it is not actually applied for their benefit

  2.  

    (b)     income from property which is held for the purposes of superannuation funds relating to undertakings outside the UK, but is not held as a member of a property investment LLP6

  3.  

    (c)     it is income from service charges paid in respect of dwellings in the UK7 (including Scotland and Northern Ireland8) which are

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