Income Tax for discretionary trusts is rising by 25%.

On April 6^th this year, tax on income exceeding £150,000 will rise to 50% and for dividends to 42.5%.

 It applies to all income trustees accumulate and distribute exceeding the trustees standard rate band of, normally, £1,000. This means tax on trust income will rise by 25% in less than two months time.

 It’s not too late to limit the impact

 What are the actions you could take to mitigate the impact of this change. In view of the tax increase and current uncertainty in investment conditions, it’s time to consider:

 1.     Distribute income: By distributing income to beneficiaries, you can help them recover some – and in most cases, all – of the income tax that you pay as a trustee (not applicable to ’settlor interest trusts’ as all trust income is assessed on the settlor regardless of whether and to whom it is distributed. The notional 10% tax credit on dividend income is not reclaimable in any circumstances.

 2.     Invest for capital growth: make use of your annual Capital Gains Tax exemption against capital gains arising on disposal, which would mean focusing your investment strategy on growth rather than income. However, you should also consider risk and suitability for the Trust.

 3.     Invest tax efficiently: Invest in the most tax-efficient investments within the trust. This is of particularly importance if you want to invest for income.

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