Trusts – Background Print
The use of trusts to shelter income and gains from taxation has been discouraged by legislation over the years, and in particular their use to avoid CGT has been reduced by successive anti-avoidance measures.
For 2020/21 and 2021/22 the Rate Applicable to Trusts (“RAT”) is 38.1% in respect of dividend income, and 45% for all other income.
Capital gains are charged at the flat rate of 20% for 2020/21 and 2021/22 on all assets except residential property which does not qualify for the Principal Private Residence relief and carried interest which are taxable at 28%.
There is a “basic rate” band on the first £1,000 of trust income for all trusts otherwise chargeable at the RAT. Although this is called a “basic rate” band, the rate of tax will depend upon the type of income. For both years 2020/21 and 2021/22, dividends are charged at 7.5%, and other income at 20%. This is designed to take the smallest trusts out of the additional tax burden of paying tax at the RAT. The basic rate band is divided equally between all trusts made by the same settlor which are in existence at any time during the relevant tax year, subject to a de-minimis basic rate band of £200 per trust.