Trust and estates – changes to taxation of low levels of income

The measure

HMRC have today published a consultation response in which they have, amongst other measures, announced that the government will abolish the £1,000 standard rate band for discretionary trusts. This means that income that would have been taxable at the basic or ordinary dividend rates will now be taxable at trust rates. This point has been published as part of a consultation into low income trusts and estates, but it seems that the standard rate band will be abolished for all discretionary trusts.

Other measures announced today are:

• Trusts and estates with income up to £500 will not need to pay tax on that income as it arises. Where a settlor has made other trusts, the amount is the higher of £100 or £500 divided by the total number of existing trusts (subject to some exceptions)
• Beneficiaries of UK estates will not need to pay tax on income distributed to them that is within the £500 limit for the Personal Representatives
• Technical amendments will be made to ensure that for beneficiaries of estates their tax credits and savings allowance continue to operate correctly.

Who will be affected?

• Trustees of discretionary trusts
• Trusts and estates with income up to £500
• Beneficiaries of UK estates who receive income distributions of up to £500

When will the measure come into effect?

The changes relating to the £1,000 standard rate band, to trusts and estates with income up to £500 and beneficiaries of estates who receive income distributions of up to £500 will take effect from 6 April 2024.

The ‘technical amendments’ referred to above will take effect from 6 April 2023.