Discretionary trust: tax-free income query

by **Inquisitive** on Tue Jul 19, 2011 12:18 pm

Income from NS&I index-linked savings certificates does not need to be included in the tax return of a discretionary trust. I presume that the distribution of such income to a beneficiary also does not need to be included. Is that correct?

by **maths** on Tue Jul 19, 2011 4:11 pm

I know of no reason why tax exempt income accruing to trustees when paid out under a discretion to beneficiaries is not subject to the s496 charge and thus is reportable.

by **Inquisitive** on Tue Jul 19, 2011 5:02 pm

Inquisitive wrote:Income from NS&I index-linked savings certificates does not need to be included in the tax return of a discretionary trust. I presume that the distribution of such income to a beneficiary also does not need to be included. Is that correct?

[quote="maths"]I know of no reason why tax exempt income accruing to trustees when paid out under a discretion to beneficiaries is not subject to the s496 charge and thus is reportable.

If such distribution is reportable there is no provision on form R185 (Statement of income from trusts) for non-taxable income. Does this mean that the income (on these tax-free certificates) gets taxed at the trust rate, i.e. 50%?