Compact Services

  2004 Budget - Trusts

Trusts are liable to income tax on income and CGT on gains for each tax year. The trustees are responsible for filing self assessment tax returns by the normal date (31 January 2006 for 2004/05) and paying the tax on the normal dates (payments on account of income tax on 31 January and 31 July 2005, and the balance of income tax and the whole of the CGT on 31 January 2006).

The tax rates applicable to trusts are:

  Life interest Discretionary
Rate on general income (profit, rent) 22% 40%
Rate on savings income (interest) 20% 40%
Rate on dividend income 10% 32.5%
Rate on capital gains 40% 40%
CGT annual exemption £4,100 £4,100

Discretionary trusts paid tax at lower rates for 2003/04 (34% on most income and gains, 25% on dividends).

The CGT annual exemption is divided between trusts established by the same settlor since 1978, to a minimum of £820.

Trusts are also liable to pay inheritance tax in a variety of circumstances, and trustees should make sure that they have appropriate professional advice to enable them to fulfil all their legal and fiscal responsibilities.