Tax Simplifications for Low Income Trusts and Estates

Low income Trusts and Estates

Trustees of trusts and personal representatives (PRs) of death estates do not have tax allowances in the same way as individuals do. As a result of this, trustees and PR’s can be required to file self-assessment returns in relation to relatively small amounts of income.

In 2016 HM Revenue and Customs (HMRC) introduced a narrowly targeted informal arrangement that removed Trustees and PR’s from income tax where the income of a trust or estate comprised only savings interest and the tax liability on that interest was below £100. This was intended only as a temporary measure. This existing informal arrangement is extended to include the current tax year to 5^th April 2023.

Following a consultation document, the existing informal arrangement will be formalised and widened. From 6^th April 2024, trusts and estates with income of all types (not just savings interest alone) up to £500 will not be required to pay tax on, or report, that income as it arises. However, if total income exceeds £500, tax will be payable on the full amount.

It is also important to note that the £500 will be reduced for some groups of trust set up by the same settlor.

For estates, the £500 tax-free amount:

• will apply for every tax year of administration, but any unused sum cannot be carried forward to subsequent years when reporting under the informal procedures;
• applies to chargeable income and does not therefore include ISA income which continues to be exempt from income tax after a person has died until closure or up to 3 years following their passing.

Income of estate beneficiaries which falls within the £500 tax-free sum

From the tax year 6^th April 2024 to 5^th April 2025 (2024-25) onwards, beneficiaries of death estates will not pay tax on income distributed to them where this is within the £500 tax-free amount for the personal representatives. Beneficiaries will continue to be taxable on any estate income received where the £500 tax-free limit does not apply.

 Standard rate band

 Currently the first £1,000 of trust income is assessed to tax at basic rates of tax. From the tax year, 2024-25 this is to be withdrawn.

Speak to a member of our tax planning team