How is income from a trust taxed in the UK in 2026/27?

Full answer

UK trust income tax depends on the type of trust. The four main categories are discretionary trusts, interest-in-possession trusts, bare trusts, and settlor-interested trusts. 1. Discretionary trusts Trustees pay tax on all trust income: -- Standard Rate Band (SRB): the first GBP 1,000 of income is taxed at 20% (non-dividend) / 8.75% (dividend) -- Above GBP 1,000: 45% trust rate on non-dividend income; 39.35% on dividend income -- The GBP 1,000 SRB is shared between all trusts created by the same settlor (if more than 5 trusts, each gets GBP 200) When trustees pay income to beneficiaries, they provide a tax credit statement. Beneficiaries include the income at 45% gross in their own return and then: -- Reclaim tax if they are non-taxpayers or basic-rate taxpayers -- Pay further tax if they are higher-rate taxpayers (already at 45% so no further income tax; dividend income slightly different) 2. Interest-in-possession trusts (life interest trusts) Trustee pays income to the life tenant. Trustees pay: -- 20% on non-dividend income -- 8.75% on dividend income -- The life tenant receives income net of basic rate tax credit and includes it in their SA return at their marginal rate 3. Bare trusts The beneficiary is absolutely entitled to the trust assets. Income is taxed directly on the beneficiary as if they received it personally -- the trust is transparent for tax purposes. If the beneficiary is a minor child and the settlor is a parent, the income is treated as the parent's income (parental settlement rules) unless it is less than GBP 100 gross per child. 4. Settlor-interested trusts Where the settlor or their spouse/civil partner can benefit from the trust (including most "flexible" trusts created by the settlor for their own retirement), all income is taxed on the settlor regardless of what is actually paid out. Trustees still pay the trust rate but the settlor can reclaim the tax credit. Trust Administration Self Assessment All UK trusts (except bare trusts in some cases) must file annual Trust and Estate Tax Returns (SA900) if they have income or gains. Trustees also have registration obligations under the Trust Registration Service (TRS) -- most express trusts must be registered with HMRC's TRS.

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