TRUSTS

Income of Beneficiaries under Settlor-interested Trusts

The income of a trust in which the settlor has an interest is treated for income tax purposes as the settlor’s income. Tax paid by the trustees is treated as paid on his behalf. Measures are already in place to avoid the double taxation that would otherwise arise when the income is distributed to beneficiaries. As a further measure, with backdated effect for 2006/07 onwards, the distribution will be treated as one of the highest slices of the beneficiary’s income so that it will not have the unintended effect of pushing his savings and/or dividend income into a higher rate band.