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HMRC internal manual

International Manual

DT applications and claims: Non-resident beneficiaries of UK trusts

Notes on types of underlying income in a discretionary trust

  • UK dividends: includes stock dividends.
  • UK interest
  • Dividends and interest are the most common types of income that you will see in discretionary trusts. With the exception of UK dividends, all of the tax associated with a particular source is considered for the purposes of ESC/B18 to be tax on that source. You may also see:
  • Foreign income: relief is given under domestic legislation. Although foreign dividends are taxed in the hands of the trustees at the dividend trust rate of 32.5% (25% for periods before 6 April 2004), the beneficiary is treated as having been taxed at 40% (34% for periods before 6 April 2004).
  • Rental income: there are no double taxation agreements that allow relief to individuals on rental income. No repayment is due on any part of the tax applicable to rental income.
  • Accrued income: income returned under the ‘accrued income’ scheme cannot be relieved under double taxation agreements.
  • Royalties: these are unusual in discretionary trusts. Relief is given at the appropriate agreement rate.
  • FOTRA securities: you may be considering relief under an agreement which has an interest article that restricts relief. However, income shown on the trust return as interest may be derived from FOTRA securities on which full relief is available to non- residents. As there is no indication in the trust return that income is derived from FOTRA securities, you will not usually be able to consider repayment on this as a separate source from interest. However, if there is any indication of the amount of FOTRA securities in the papers submitted with the return, or in figures originating from the trustees and provided by the claimant or their agent, you should use these to allow relief on the FOTRA securities.