Trust Income & Tax

Types of Trust

How trust income is taxed depends on the type of trust:^[1]

Bare trust — assets held in the beneficiary’s name; income taxed on the beneficiary
Interest in possession trust — beneficiary has the right to income as it arises
Discretionary trust — trustees decide who gets income and when
Accumulation trust — trustees can accumulate income within the trust

How Trustees Are Taxed

Trustees pay Income Tax on trust income at special rates:^[1]

Trust Type	Tax Rate
Interest in possession	20% (basic rate)
Discretionary / accumulation	20% on first £1,000 (standard rate band), 45% on the rest
Dividends in discretionary trusts	10.75% on first £1,000, 39.35% on the rest

How Beneficiaries Are Taxed

When you receive income from a trust, it comes with a tax credit reflecting the tax the trustees have already paid. Depending on your personal tax rate:^[1]

Non-taxpayer: You can reclaim the tax credit
Basic rate taxpayer: For discretionary trusts, you can reclaim the difference between 45% and 20%
Higher/additional rate taxpayer: You may owe additional tax

Bare Trusts

In a bare trust, income is taxed as if the beneficiary received it directly. The beneficiary uses their own Personal Allowance and pays tax at their own rate. Trustees don’t need to file a separate trust return.^[1]

Estates of Deceased Persons

During the administration of an estate (between death and distribution), income earned by the estate is taxed at the basic rate (20%, or 10.75% for dividends). When beneficiaries receive their share, they get a tax credit for the tax already paid.^[3]

Reporting Trust Income

If you receive income from a trust, report it on the SA107 supplementary pages of your Self Assessment return. You’ll need the R185 form from the trustees showing the income and tax deducted, and can then submit your Self Assessment online.^[5]

Frequently Asked Questions

How is income from a trust taxed?

It depends on the trust type. In a bare trust, income is taxed on the beneficiary at their own rate. In a discretionary trust, trustees pay 20% on the first £1,000 and 45% on the rest, with beneficiaries receiving a tax credit.

Do I pay tax on a trust distribution?

Trust distributions come with a tax credit for tax the trustees have already paid. If you are a non-taxpayer you can reclaim it; if you are a higher-rate taxpayer you may owe additional tax.

How do I report trust income on my tax return?

Report trust income on the SA107 supplementary pages of your Self Assessment return. You will need the R185 form from the trustees showing the income received and the tax already deducted.

How is estate income taxed during administration?

During the administration of an estate, income is taxed at the basic rate (20%, or 10.75% for dividends). When beneficiaries receive their share, they get a tax credit for the tax already paid by the estate.

Sources

Trusts and taxes — GOV.UK
Trusts and Capital Gains Tax — GOV.UK
Trusts and estates: detailed information — GOV.UK
Income Tax rates and Personal Allowances — GOV.UK
Self Assessment forms and helpsheets — GOV.UK

Income from Trusts & Estates