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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
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Trusts for particular purposes: the reason for ESC A68 - years to 2009-2010

This extra-statutory concession applies only to employee trusts, which are defined as ‘discretionary trusts created by funds provided by employers for the benefit of their employees…’. The concession applies in respect of discretionary payments made for tax years up to and including 2009-2010. For subsequent years the concession is withdrawn and replaced by statute. Guidance on the statute is at TSEM5650 onwards.

Claims under the concession for years to 2009-2010 should be accepted within the normal time limits for claims at TMA/S43.

The income of discretionary trusts is charged to tax on the trustees at the special trust rate see TSEM1565. When the trustees make a payment out of trust income to beneficiaries, the beneficiaries are normally given credit (under ITA/S494(3)) for the tax paid by the trustees.

Trusts set up by employers for the benefit of their employees are generally discretionary trusts. The trustees may distribute income, on which they have paid tax, to employees. The payment is employment income assessable to tax on the employee. The employee cannot have credit for the tax paid by the trustees. This is in contrast to the tax rules that normally apply to trust distributions. The result is that tax is effectively charged twice. There is a charge on the trustees as trust income and on the employees as employment income.

The concession partially relieves this double charge. HMRC staff dealing with legacy cases can see the precise text at ESC A68.

The concession does not apply where the trustees are non-resident. ITA/S493 does not apply to them so they have no tax pool.