In this section:
Mixed trusts
Mixed trusts are a combination of more than one type of trust. For tax purposes the different parts of a mixed trust are usually treated according to the tax rules that apply to the respective parts.
On this page:
- What is a mixed trust?
- Mixed trusts and Income Tax
- Mixed trusts and Capital Gains Tax
- Mixed trusts and Inheritance Tax
What is a mixed trust?
A mixed trust is a mixture of more than one type of trust. For example, some of the assets in a trust may be set aside and treated as an interest in possession trust; other assets may be set aside and treated as a discretionary trust.
Example
Two children benefit from an accumulation trust. According to the terms of the trust deed, the beneficiaries are entitled to all income received by the trust when they reach 18. Zoe reaches 18 while Sarah is still 14. The part of the trust benefiting Zoe becomes an interest in possession trust, while the part that benefits Sarah remains an accumulation trust until she reaches 18. In other words, when Zoe reaches 18 the trust becomes a mixed trust.
Mixed trusts and Income Tax
In mixed trusts, the income for each part of the trust will be taxed under the rules that apply to that type of trust. For example, the part of the trust in which there is an interest in possession will be taxed as such, while the discretionary part will be taxed as a discretionary trust. This is true for both trustees and beneficiaries.
Find out more about different types of trust and how they are taxed
Mixed trusts and Capital Gains Tax
Capital Gains Tax is a tax payable on ‘gains’ (profits) made from the sale of assets such as shares, property or possessions. It is chargeable in the same way on all trusts. Trustees are liable to Capital Gains Tax on any chargeable gains above an amount set each year called the ‘annual exempt amount’.
Beneficiaries are not taxed on any trust gains and do not get credit for tax paid by the trustees.
Get more information on Trusts and Capital Gains Tax
Mixed trusts and Inheritance Tax
For the purposes of Inheritance Tax, the different parts of a trust within a mixed trust are treated as a whole.
As with discretionary, interest in possession and accumulation trusts, there may be an Inheritance Tax charge when:
- assets (money or property) are put into a mixed trust
- a mixed trust reaches a ten-year anniversary
- assets are distributed from a mixed trust
It is worth noting that the Inheritance Tax regime sometimes uses its own classification for trusts. Mixed trusts may fall within what are known as ‘relevant property’ trusts.
