Trusts and Inheritance Tax

Taxation of trusts ― introduction

Produced by Tolley
  • 22 Apr 2022 11:31

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

  • Taxation of trusts ― introduction
  • Introduction
  • Beneficiaries’ entitlement
  • Bare trust
  • Fixed interest ― interest in possession
  • Fixed interest ― accumulation and maintenance
  • Discretionary interest
  • Flexible or combined trust
  • Inheritance tax
  • Income tax
  • More...

Taxation of trusts ― introduction

Introduction

The taxation of trusts is based on the personal tax regime. Trusts are subject to the same taxes as individuals: income tax, capital gains tax and inheritance tax. However, the application of those taxes varies according to the status and terms of the trust. The determining factor is most commonly the entitlement of the beneficiaries. Other relevant factors are the date of commencement of the trust, the age of the beneficiaries and whether it was created during lifetime or on death. Therefore, the first step in working out how a trust is to be taxed is to examine the trust document to assess what type of trust it is.

Beneficiaries’ entitlement

Trust property is held by trustees for the benefit of beneficiaries. The beneficiaries’ rights to the property are set out in the trust document or established by law. A trust fund comprises:

  1. capital (consisting of the original property transferred into trust, replacements and additions to it, and capital gains)

  2. income (consisting of the income earned on the trust capital)

The tax status of the trust depends on the beneficiaries’ entitlement to capital and income.

Bare trust

A ‘bare trust’ is not a trust at all for tax purposes. The term applies where the beneficiary of a trust has an absolute right to both capital and income. Beneficial ownership of the trust property lies with the beneficiary, although, it may be held legally by or ‘in the name of’ the trustees. The most obvious example is where assets are held

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.

TAKE A FREE TRIAL

Popular Articles

Research and development expenditure credit (RDEC)

RDEC ― large company R&D reliefSince 1 April 2016, or from 1 April 2013 by election, large company R&D relief is given through research and development expenditure credits (RDEC), which is a taxable credit payable to the company. As the credit is taxable, it is also sometimes called an above the

05 Apr 2022 08:42 | Produced by Tolley Read more Read more

Patent box tax regime ― overview

Introduction to the regimeThe aim of the patent box regime is to provide an incentive for companies to develop and retain patents and other qualifying intellectual property within the UK as part of the Government’s growth agenda. Finance Act 2012 originally introduced the legislation governing the

21 Jun 2022 09:11 | Produced by Tolley Read more Read more

Coronavirus (COVID-19), statutory sick pay (SSP) and NIC

Following Spring Budget 2020, statutory sick pay (SSP) rules were changed temporarily to help workers affected by the coronavirus (COVID-19) outbreak. The Chancellor confirmed the Prime Minister’s previous announcement that SSP will be paid from day 1 rather than day 4. Updated guidance on the

16 Jun 2022 00:33 | Produced by Tolley Read more Read more