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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: the tax pool - trustees pay excess tax

If the tax in the tax pool is not enough to cover the tax credit needed for the payments to beneficiaries the trustees must pay the difference in their Self Assessment Tax Return for the year. The relevant legislation is at ITA/S496.

For example, in 2010-2011 the trustees make discretionary payments from income to beneficiaries totally £5,000. This is treated as a net amount from which tax at the trust rate 50% has been deducted. The tax credit is £5,000. The amount in the tax pool is £2,500. The trustees have to pay a further £2,500 tax.

See TSEM3024 about how trustees can calculate the maximum discretionary payment to cover the additional tax under S496.