The taxation of trusts is based on the personal tax regime. The determining factor is most commonly the entitlement of the beneficiaries. This document discusses the types of trusts and the taxes they are subject to, and the reliefs available: Income Tax, Capital Gains Tax and Inheritance Tax. However, the application of these taxes varies according to the status and terms of the trust.

Points discussed within this guidance note:

> Introduction to Taxation of trusts

Trusts are subject to the same taxes as individuals: income tax, capital gains tax and inheritance tax. The first step in working out how a trust is to be taxed is to read the trust instrument to assess what type of trust it  is.

> Beneficiaries’ entitlement

The tax status of the trust depends on the beneficiaries' entitlement to capital and income. This note explains Bare trusts, Interest in possession, Discretionary interest and Flexible or combined trust. The taxation will depend on the type of trust.

> Bare trust

> Interest in possession

> Discretionary interest

> Flexible or combined trust

> Inheritance tax

> Income tax

> Capital gains tax

> Annual exemption

> Rate of tax

> Hold-over relief


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