Changes affecting income tax on low income trusts and estates
Following a consultation last year, the Chancellor used the 2023 Spring Budget to announce changes that will impact income tax on low income trusts and estates as part of HMRC's strategy for simplifying tax in the UK.
These changes are subject to receiving full legislative powers but are likely to include the following changes from April 2024:
Trusts and estates with income up to £500 will not pay income tax.
If the settlor, i.e., the person(s) who is transferring their money or assets into the trust fund for the sole use of the beneficiaries, has made other trusts, the taxable amount is the higher of £100 or £500 divided by the other active trusts (although there may be some exceptions to this rule).
The default basic tax rate and the ordinary dividend tax rate that applies to the first £1,000 slice of discretionary trust income will be removed.
Beneficiaries of UK estates will not pay income tax on income distributed to them, which is within the £500 limit for the personal representatives, i.e., the person legally appointed to administer the deceased's estate.
From April 2023, HMRC will also be making a technical amendment to the legislation to enable tax credits and savings allowances of the beneficiaries of estates to operate correctly.
Understanding how these changes affect you
If you are a settlor or beneficiary of a trust and are unsure what impact these changes will have on you, please feel free to contact us. We will be happy to explain what the changes are and the impact they could have on your situation. Please email us at firstname.lastname@example.org or call 0116 216 7681.