Trust income tax implications

In this lesson

1. 0:00 Introduction to trust income tax
2. 0:17 How trusts are taxed on income
3. 1:00 Tax treatment in beneficiaries' hands
4. 2:07 Interest in possession trust distributions
5. 3:33 Discretionary trust income treatment
6. 5:27 Worked example: calculating tax payable
7. 8:40 Summary and PAYE considerations

About this lesson

This video covers the key distinction between interest in possession trusts (where income is distributed net of basic rate tax) and discretionary trusts (where income is distributed net of 45% tax), and shows you how to gross up trust income correctly in a tax computation. Understanding trust income tax is essential for the Taxation module and will help you handle complex personal tax scenarios in both exams and practice. The video breaks down the practical mechanics: how income generated within a trust is taxed, why trustees submit self-assessment returns, and how beneficiaries are taxed on distributions they receive. You'll see that for interest in possession trusts, income retains its original character (property income stays as property income, dividends as dividends) and goes into the normal tax computation columns. For discretionary trusts, all income is treated as non-savings income and must be grossed up by 55% (since it's distributed net of 45% tax). The video then walks through a worked example showing Michelle's tax position across employment income, savings, dividends, and trust distributions from both trust types, demonstrating exactly how to apply tax credits and calculate her final tax payable.

Duration: 9m