Capital payments from discretionary trust

[BMCC]

I am a trustee of a family discretionary trust, to date payments to beneficiaries have been from income only and covered by the tax pool. If a capital payment is made what is the tax position for both the trust and the beneficiaries.

[Lawrence McAulay 01]

It could potential give rise to an 'exit' charge, being a marginal IHT charge, calculated as a variable percentage of the amount leaving the trust. The percentage can vary from nil to 6%, depending on the amounts involved, how long the trust has been going, other transfers made by the settlor of the trust, etc. As it is quite an awkward calculation and depends so much on the background of the trust, you should obtain professional assistance, firstly before deciding whether to distribute capital, and secondly to calculate the IHT, if any, if you do so decide.

L