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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust income and gains: beneficiaries: individual beneficiary receives discretionary income payment from a resident trust: trust not settlor-interested

In the case of trusts or settlements that are not settlor-interested a discretionary income payment is treated as an amount that is net of tax at the trust rate. The beneficiary’s income is the net amount grossed at the trust rate. It carries tax credit at that rate. It is available for relief or repayment.

The gross amount is an annual payment. It is a new source of income, usually not identified with the underlying trust income. Cunard’s Trustees v CIR (27 TC 122) supported the view that when the trustees exercised their discretion, a new source of income came into existence. Certain beneficiaries can claim relief under extra-statutory concession B18. This allows them the exemption or reliefs they could have claimed if they had received the underlying trust income directly.