Stand-out Q – income tax on discretionary trust…

by

TUE, 06 FEB 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question

What rate(s) of income tax do trustees of a discretionary trust pay on income?

Answer

45%, unless it’s dividend income.

Trustees of a discretionary trust will be liable to income tax on any income arising within the trust (which exceeds the trust’s basic rate band) at 45%, unless it’s dividend income. Dividend income is taxed at 38.1%. Trustees are not entitled to an allowance exempting income up to a specified amount in the same way that individuals are entitled to a personal allowance and dividend allowance. However the first £1,000 of trust income is taxable at the basic rate of 20% or the dividend ordinary rate of 7.5%. Note that if the settlor has more than one trust, this £1,000 is divided by the number of trusts they have. However, if the settlor has 5 or more trusts, the standard rate band for each trust is £200.

Follow us on Twitter – @JHPartnership