Stand-out Q – income tax on discretionary trust…
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What rate(s) of income tax do trustees of a discretionary trust pay on income?
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.
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