Trusts and taxes
Trusts and Income Tax
Most trusts do not pay Income Tax on income up to a tax-free amount (normally £500). Tax is due on the full amount if the income is more than the tax-free amount.
Trustees do not qualify for the dividend allowance.
Different types of trust income have different rates of Income Tax.
Each type of trust is taxed differently. Trusts involve a ‘trustee’, ‘settlor’ and ‘beneficiary’.
Accumulation or discretionary trusts
Trustees are responsible for paying tax on income received by accumulation or discretionary trusts.
If the settlor has more than one accumulation or discretionary trust, the £500 tax-free limit is divided by the number of accumulation or discretionary trusts they have.
If the settlor has set up 5 or more accumulation or discretionary trusts, the limit for each trust is £100.
The tax rates are below.
| Type of income | Tax rate |
|---|---|
| Dividend-type income | 39.35% |
| All other income | 45% |
The tax rate for income used to pay qualifying trust management is 8.75% for dividend income and 20% for other income. Find out about taxable items, tax pools and deductions for trusts and Income Tax.
Interest in possession trusts
The trustees are responsible for paying Income Tax at the rates below.
| Type of income | Income Tax rate |
|---|---|
| Dividend-type income | 8.75% |
| All other income | 20% |
Sometimes the trustees ‘mandate’ income to the beneficiary. This means it goes to them directly instead of being passed through the trustees.
If this happens, the beneficiary needs to include this on their Self Assessment tax return and pay tax on it.
Bare trusts
If you’re the beneficiary of a bare trust you’re responsible for paying tax on income from it.
You need to tell HMRC about the income on a Self Assessment tax return. The £500 tax-free limit for trusts does not apply, but you may be able to use your Personal Allowance.
If you do not usually send a tax return, you need to register for self-assessment by 5 October following the tax year you had the income.
Settlor-interested trusts
The settlor is responsible for Income Tax on these trusts, even if some of the income is not paid out to them. However, the Income Tax is paid by the trustees as they receive the income.
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The trustees pay Income Tax on the trust income by filling out a Trust and Estate Tax Return.
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They give the settlor a statement of all the income and the rates of tax charged on it.
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The settlor tells HMRC about the tax the trustees have paid on their behalf on a Self Assessment tax return.
The rate of Income Tax depends on what type of trust the settlor-interested trust is.
Other types of trust
There are special tax rules for parental trusts for children, trusts for vulnerable people and trusts where the trustees are not resident in the UK for tax purposes. These are called non-resident trusts.
If you’re the beneficiary
Depending on the type of trust and your income, you might be able to claim some of the Income Tax back.
If you’re the trustee
Get help completing the Trust and Estate Tax return.
If you need more help
There’s more detailed guidance on trusts and Income Tax.
Contact HMRC or get professional tax advice if you need help.