Because HM Revenue and Customs applies different tax rates to the income earned from a trust, the amount you pay will depend on which type you have.
This section explains how trust income is taxed and who is responsible for paying Income Tax on taxable items to HMRC in the United Kingdom.
The first £1,000 on income received by an accumulation or discretionary trust is taxed at the standard rate - and paid by the trustee.
But, you would need to divide the £1,000 threshold by the number of trusts that the 'settlor' has set up if they have more than one.
The standard rate band for each trust will become £200 in situations where they have set up at least five (5) trusts.
Important: The main section explains how responsibility differs for trust 'trustees', 'settlors', and 'beneficiaries' in Great Britain (England, Scotland, Wales) and Northern Ireland.
The beneficiary of a bare trust has the responsibility for paying tax on the income earned from it. You must use a Self Assessment tax return to notify HM Revenue and Customs.
What if you do not usually send a tax return to HMRC? If not, you would need to register for Self Assessment (no later than the 5th of October following the tax year that you received the income).
The trustee(s) of interest in possession trusts will be the people held responsible for paying Income Tax to HMRC - using these rates:
Note: Because trustees do not qualify for the dividend allowance, they will pay tax on dividends determined by the band they fall under.
It is not uncommon for the trustee(s) to mandate (pass over) income 'directly' to the beneficiary and have them pay tax on it.
Thus, because it's not passed through the trustees in the normal way, any beneficiaries would need to include it in their Self Assessment tax return.
Despite not necessarily having 'all' the income paid out to them, the settlor would be responsible for Income Tax on these types of trust. But, the trustee pays it when they receive the income.
Special tax rules also apply to 'non-resident trusts', such as when none (or some) of the trustees are resident in the United Kingdom for tax purposes.
Another section explains more about paying and reclaiming tax on trusts as a beneficiary. It will depend on what kind of trust you have set up and your income.
Note: Specialist guidance on the GOV.UK website explains more about taxable items, deductions for trusts and Income Tax, and how tax pools work. You can also get help with tax from a professional (e.g. an accountant).
Note: The index section has extra information about trusts and taxes in Great Britain (England, Scotland, Wales) and Northern Ireland.
Trusts and Income Tax Help Guide for United Kingdom