The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
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:
The nature of an interest in possession and the income tax treatment is detailed in the Interest in possession trusts – income tax guidance note. In the hands of the trustees, the income is taxed at basic and dividend rates, but it is ultimately charged on the beneficiary at his personal rates, regardless of when and whether the income is paid over to him.
Additional rates of tax apply to trustees’ accumulated or discretionary income. This is defined as income which either:
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