The Spring Budget had some important announcements for trustees and trusts and also for the executors of estates.
Trusts | Spring Budget
At present, trusts such as discretionary trusts pay income tax at up to 45% on most of their income. There is however an allowance: the first £1,000 of income of a discretionary trust is taxed at the standard rate (20%) or the dividend ordinary rate (7.5%). If a settlor has created more than one trust then the £1,000 allowance is shared between them or if there are more than 5 such trusts then each has an allowance of £200.
This rule is to be changed such that effect that the first £500 of trust income will not be taxable at all and the £1,000 allowance will disappear.
If the trust is one of a series set up by the same settlor, then the £500 allowance will not apply to each trust but will be the higher amount of £100 or the £500 divided by the total number of trusts created by that settlor.
The remaining income of the trust will be taxed at the normal trust rates.
Estates | Spring Budget
A similar rule will be introduced for executors and personal representatives dealing with the administration of an estate. The first £500 of income will not be taxable and in effect can be passed on free of tax to the beneficiaries.
These changes will come into effect for the 2024-25 tax year.
They should help to reduce the costs involved in administering trusts with low levels of income and avoid the need to complete tax returns on an annual basis while the trust income remains below £500.
If you are a trustee or a personal representative and would like to discuss how these changes might impact your trust or estate please do not hesitate to contact our private client team.