ABSTRACT
Trustees, unlike individuals, are not liable to the higher rate of income tax nor entitled to claim personal reliefs. Generally, the trustees are liable to income tax at the basic rate. However, with regard to discretionary (or accumulation) trusts, trustees are liable to income tax at a special rate, namely, 34% (for 1998-99). This is known as ‘the rate applicable to the trust’ or the larger rate: see s 686(1A) of the TA 1988. With regard to distributions from UK resident companies, the trustees receive dividends net of tax at the lower rate of 20% together with a tax credit matching that lower rate of tax. For the year of assessment 1998-99, they will have a further liability of 14% tax to pay on the grossed up value of the dividends. However, the treatment of tax credits will be changed radically from 1999-2000 and subsequent years. The amount of tax credit attaching to such distributions is reduced from 20% to 10%. As compensation for the reduction of the tax credit on distributions, the rate of tax on distributions received by discretionary and accumulation trusts is reduced from 34% to 25% (a new Schedule F trust rate): ss 32, 33 and 34 of the FA (No 2) 1997.
