Taxation on Trusts
Understanding Taxation on Trusts is a vital element of your tax planning strategy.
Different types of trust income have different rates of Income Tax.
Read the overview for definitions of ‘trustee’, ‘settlor’ and ‘beneficiary’.
Accumulation or discretionary trusts
Trustees are responsible for paying tax on income received by accumulation or discretionary trusts. The first £1,000 is taxed at the standard rate.
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 set up 5 or more trusts, the standard rate band for each trust is £200.
Capital Gains Tax is a tax on the profit when you sell, give away, exchange or transfer something (an ‘asset’) that has increased in value.
It’s the gain you make that’s taxed, not the amount of money you receive.
For trusts there’s an annual tax-free allowance of £5,450, or £10,900 if the beneficiary is a vulnerable person. This means trustees only pay tax if the increase in value is more than this amount. If there’s more than 1 beneficiary, the higher allowance may apply even if only 1 of them is vulnerable.
For trustees, the rate of Capital Gains Tax is 28% – but they might be able to reduce this if they qualify for
Taxation on Trusts – Will Trust & Protect.