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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust income and gains: beneficiaries: payment from trust capital - normally capital in beneficiary’s hands - S31 Trustee Act 1925

S31 Trustee Act 1925 payment to infant

The concluding words of Section 31 (2) Trustee Act 1925 allow the trustees to apply accumulations ‘as if they were income arising’.

These words do not have the effect of de-capitalising the accumulations concerned. Once accumulated income is forever capitalised. Where such accumulations have been released the money must therefore have been received by the beneficiary as capital. The phrase ‘as if they were income arising in the then current year’ should be regarded as simply meaning that the trustees are bound by the proviso to Section 31(1), just in the same way as they would be if they were deciding whether or not to release current income to or for the benefit of the minor.

When paid by virtue of this provision the payment is capital in the beneficiary’s hands, so it would not fall within ITA/Ss493-494, i.e. there is no tax credit to the beneficiary. Such a payment may be subject to the application of ITTOIA/S629 to charge the amount as income of the settlor - see TSEM4300+.