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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
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Trust income and gains: the charge on trustees : standard rate band - income to which the band applies

From 2005-06 ICTA88/S686D provides that the first part of taxable income, which would otherwise be chargeable at the special trust rates, is instead chargeable at the basic rate, lower rate (up to 2007-08) or dividend ordinary rate, depending on the nature of the income. This first part of income is known as the standard rate band. From 2006-07 the standard rate band applies to any income or deemed income that is otherwise chargeable at the special trust rates. It therefore applies not only to income that can be accumulated or paid at discretion (ITA/S479) but also to certain capital receipts that are deemed to be income when received by both discretionary and non-discretionary trusts. See TSEM3018.

ICTA88/S686D was rewritten as ITA/S491. Section 686D and ITA/S491 do not apply to chargeable gains - they remain chargeable at the appropriate CGT rates.

Any income that is already chargeable at the basic rate, lower rate (up to 2007-08) or dividend ordinary rates is not included in the standard rate band. In the case of discretionary trusts within ITA/S479, income which has been applied to pay trust management expenses is not chargeable at the special trust rates. So any income that has been applied in this way is not included in the £1,000 band (£500 band in 2005-06).

If a settlor of a trust or settlement has made more than one settlement the standard rate band is reduced in accordance with ITA/S492. This applies to the standard rate band of £1,000 in 2006-07 and later years only. The standard rate band of £500 in 2005-06 is not reduced. Where ITA/S492 applies, the standard rate band is reduced by dividing the £1,000 by the total number of settlements made by the same settlor which are in existence in the year. There is no exemption in ITA/S492 for charitable settlements made by the settlor. Ordinary donations to third party charities would not be counted as separate settlements when considering the amount of standard rate band due. The amount cannot be reduced below £200. So, if a settlor has made two settlements each will be entitled to £500; if there are three settlements each will be entitled to £334; and if there are four each will be entitled to £250. If a settlor has made five or more settlements each will be entitled to £200.

Any settlement that is in existence during any part of the year will count towards the total number of the settlor’s settlements. If there is more than one settlor of a settlement, the amount is reduced by reference to the settlor with the highest number of settlements.