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HMRC internal manual

Savings and Investment Manual

From
HM Revenue & Customs
Updated
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Transfers of income streams: non-corporate transferors: trust issues

Non-corporate transferors: trust issues

The transfers of income streams legislation applies only where the income which is transferred ceases to be taxable income of the transferor. The creation of an interest in possession by the trustees of a discretionary trust does not prevent the income being income of the trustees for the purposes of income tax. Similarly, a transfer by trustees of an existing interest in possession from one life tenant to another does not prevent the income from being income of the trustees for income tax purposes. In both these cases the trustees remain taxable up to the basic rate as being in receipt of the income of the interest in possession part of the trust. This means that the transfers of income streams legislation will not apply to these transfers of income by trustees of a trust.

If the beneficiary of a discretionary trust or an interest in possession trust sells their interest, they are transferring the asset from which the right to income arises. The underlying asset from which the right to relevant receipts arises is the interest in possession. Because the transfer of the income is the consequence of the transfer of an asset the transfers of income streams provisions will not apply.

A discretionary beneficiary has no right to income, only a hope. Although he or she may be able to sell that interest to someone else there is no transfer of a right to income. Even if there were such a transfer then the same reasoning as above would lead to the conclusion that the transfer is the consequence of the transfer of an asset from which the right arises.

Where income to which a beneficiary is already beneficially entitled is mandated to him by the trustees then there is no transfer of a right since the beneficiary’s right to the income already exists. Again the transfers of income streams legislation will not apply.