HMRC have published the responses to their Consultation ‘Income tax on low-income trusts and estates’ which sought views on legislative proposals to remove Income Tax liabilities from low-income trusts and estates and how proposed changes might impact beneficiaries.

The consultation received 16 written responses consisting of five from representative bodies, seven from businesses and four from individuals. HMRC also held discussions with the Trusts and Estates Agent Advisory Group and a specialist estate administration company. 

Respondents to the Consultation:

  • Welcomed proposals to legislate for the existing concession exempting income from tax where the only income is savings interest and the tax liability is below £100 and to widen its scope to include other sources of income, though some felt the limits should be periodically reviewed.
  • Raised concerns about the situation where income fluctuates and the ongoing need to review whether income needs to be reported and tax paid, or not. Respondents felt that this and the continuing need to administer tax pools and notify beneficiaries of tax credits would mean that overall there would be little reduction in the compliance burden for trustees despite the proposed changes.
  • Recognised that for some beneficiaries there would be benefits as tax repayment claims would no longer be needed in some cases.
  • Felt that the potential for a higher amount of tax to be payable on trust distributions would impact trustee decisions about how much income to distribute to beneficiaries.

As a result of the consultation at Spring Budget 2023, it was announced that from 6 April 2024:

  • Trusts and estates with income up to £500 will not pay any tax on that income as it arises.
  • The default basic rate and dividend ordinary rates of tax that apply to the first £1,000 of discretionary trust income will be removed.
  • Beneficiaries of UK estates receiving distributions of income within the above £500 limit will not pay tax on that income.

See Budget 2023: Trusts, Estates & IHT

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External link

Consultation outcome: Income Tax: Low-income trusts and estates – summary of responses  

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