Chancellor Alistair Darling said on Monday he would be increasing the income tax rate on discretionary trusts from 40 per cent to 45 per cent without any minimum threshold, bringing them in line with the new tax rate for people who earn over £150,000 a year. He will also be raising the rate of tax payable on dividend inc- ome from 32.5 per cent to 37.5 per cent.
The new rates only apply to trusts with income over £150,000 and are to be brought in from 2011-12.
Skandia head of tax and financial planning Colin Jelley says lower-earning beneficiaries may be disadvantaged by these changes unless the trust income is paid out to them in full each year and says this is disappointing for all those who set up trusts for non-tax purposes.
Jelley says: “Where the income is distributed to the beneficiary, they will pay tax at their own marginal rate. However, those who accumulate the income will be forced to pay the 45 per cent tax.”
Threesixty partner David Ingram says: “I think that the trust market should have been allowed to settle for a bit longer before more major changes were made.”