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HMRC internal manual

Trusts, Settlements and Estates Manual

Settlements legislation: taxing income on settlor


The tax chargeable on the settlor depends on the source of income arising under the settlement and the period when it arises or in the case of income paid to the settlor’s minor child (who is neither married nor in a civil partnership), when it is paid to that child.

For periods up to 5 April 2006, distribution income defined in ITTOIA/S619(3) is charged at the dividend ordinary rate or the dividend upper rate. All other income is chargeable at basic rate or higher rate. On or after 6 April 2006, ITTOIA/S619(2) provides that income arising to the trustee retains its character in the hands of the settlor. So income is chargeable to income tax in the same way as would have been the case had the income arisen directly to the settlor. It is therefore chargeable at that person’s marginal rates and carries a credit for the tax paid by the trustees. The ITTOIA/S619(2) applies to income arising or treated as arising on or after 6 April 2006 and income paid on or after that date to a settlor’s minor child or step child (who is neither married nor in a civil partnership), whenever the income arose.