The taxation of trusts is based on the personal tax regime. Trusts are subject to the same taxes as individuals: income tax, capital gains tax and inheritance tax. However, the application of those taxes varies according to the status and terms of the trust. The determining factor is most commonly the entitlement of the beneficiaries. Other relevant factors are the date of commencement of the trust, the age of the beneficiaries and whether it was created during lifetime or on death. Therefore, 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.

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.

Beneficiaries' entitlement

Trust property is held by trustees for the benefit of beneficiaries. The beneficiaries' rights to the property are set out in the trust instrument or established by law. A trust fund comprises:

  • capital (consisting of the original property transferred into trust, replacements and additions to it, and capital gains)
  • income (consisting of the income earned on the trust capital)

The tax status of the trust depends on the beneficiaries' entitlement to capital and income.

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