I5.1012 Discretionary payments

IHT, trusts and estates

I5.1012 Discretionary payments

I5.1012 Discretionary payments

What is a discretionary payment?

A payment by UK resident trustees1

is a discretionary payment if it is:


    •     income in the hands of the recipient for income or corporation tax purposes


    •     income paid to an unmarried minor child of the settlor which is treated as income of the settlor (see I5.1120)2

Payment includes payment in money's worth3. Income does not include employment income4 (see below).

The payment is deemed to be a net amount from which tax has been deducted at the trust rate for the year in which the payment is made and includes payment in money's worth5 but does not include employment income6 (see below).

Where a payment is made by non-resident trustees exercising their discretion in the UK, the beneficiary does not have a tax credit and the trustees are not liable for tax on the payment7. However, this does not affect the operation of the concession8 that enables UK resident beneficiaries that receive discretionary payments to claim a credit for the tax paid by non-UK resident trustees on UK source income.

Tax treatment of discretionary payments

The amount of the actual payment to the beneficiary is grossed up at the trust rate for the year in which the discretionary payment is made9. The beneficiary, or settlor in the case of a payment to an unmarried minor child of the settlor, is deemed to have paid income tax equal to the amount of tax calculated as above10.

The person who is treated as having paid the income tax

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