TSEM3758 - Trust income and gains: income of trust beneficiary - discretionary payment from trust capital

A discretionary payment made out of trust capital, including a payment out of accumulated income or out of a capital receipt that is deemed to be income for tax purposes, is usually not regarded as the income of the beneficiary. This view was supported in the case of Stevenson v Wishart and Others (59 TC 740).

Exceptionally, payments out of capital are treated as the income of the beneficiary where, by the terms of the trust instrument, payments out of capital are required to be made, or may be made, in order to supplement income. For example, the trustees may or have to make income up to:

• a fixed amount or
• a certain defined level as in Cunard’s Trustees v CIR (27 TC 122)

Tax cases

Cunard’s Trustees v CIR 27 TC 122

Stevenson v Wishart & others 59 TC 740