Investment income

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Investment income
  • Introduction
  • Interest
  • Dividends and company distributions
  • Insurance bonds
  • Trust receiving estate income


This guidance note highlights some features of the taxation of investment income which apply specifically to trusts.


For commentary on what constitutes interest and how it is taxed, see the Interest received net or gross guidance note (subscription sensitive) in the Personal Tax module.

Up until 5 April 2016, interest received by trustees was subject to the same arrangements for deduction of basic rate tax at source, as that received by individuals. Trusts subject to standard rates of tax had no further liability beyond the 20% deducted at source. After that date, interest is to be paid without deduction of tax.

ITA 2007, ss 850–857 as amended by FA 2016, Sch 6

Trustees are not entitled to the savings allowance introduced by FA 2016, whereby individuals may receive up to £1,000 of gross interest to be charged at a nil rate. Consequently, with the abolition of tax deduction at source, trustees will be required to file a tax return to pay a tax liability on very small amounts of interest received. HMRC has recognised that the new regime will impose an additional administrative burden on trustees, and indeed on their own resources. As a temporary measure, initially for 2016/17 only, it was announced that trustees need not declare and pay tax on interest where the only source of income is savings interest and the tax liability is below £100 .These arrangements have been extended to 2017/18 and 2018/19, and are subject to review thereafter. See HMRC Trusts and Estates newsletter: April 2016 and December 2017 .

ITA 2007, ss 6–12 as amended by FA 2016, s 4

Note that trustees cannot own Individual Savings Accounts (ISAs).

Discretionary and accumulation trusts are liable at the trust rate of 45% on interest. See the Discretionary trusts ― income tax guidance note. Where 20% tax

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