Accumulation and Discretionary Trust Taxes
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.
Trust Income Tax Rate (up to £1,000)
- Dividend-type income (e.g. stocks and shares) 7.5%
- All other income 20%
Trust Income Tax Rate (above £1,000)
- Dividend-type income 38.1%
- All other income 45%
Bare Trust Income Tax Treatment
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).
Interest in Possession Trusts
The trustee(s) of interest in possession trusts will be the people held responsible for paying Income Tax to HMRC – using these rates:
- Dividend-type income 7.5%
- All other income 20%
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.
Settlor Interested Trusts Income Tax
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.
- The trustee fills out a Trust and Estate Tax Return (SA900) to pay Income Tax on the income.
- Following that, they supply a statement of all income (and rates of tax charged on it – determined by the type of settlor-interested trust) to the settlor.
- The settlor must use a Self Assessment tax return to inform HM Revenue and Customs (HMRC) about the tax paid by the trustees on their behalf.
Special Tax Rules for Other Trusts
Some of the rules for trusts and taxes differ for those that involve vulnerable beneficiaries (e.g. disabled people) and parental trusts for children (e.g. bereaved minors).
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.
Reclaiming Tax as a Beneficiary
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).
Related Help Guides
- Income Tax codes and what they mean.
- Trusts and Capital Gains Tax help guide.
- Trusts and Inheritance Tax (IHT).
Note: The index section has extra information about trusts and taxes in Great Britain (England, Scotland, Wales) and Northern Ireland.