Simplifying the taxation of trusts and estates

In the Spring Budget Chancellor Jeremy Hunt announced that from 6 April 2024 measures will be introduced to simplify tax administration for trusts and estates.

Is it really going to make things simpler?

The changes are minor and it’s debatable whether it will simplify things, but if you’re a beneficiary of a trust or estate its worth knowing about. It’s expected to affect an estimated 37,000 individuals who are beneficiaries.

Tax free limit for income

From 6 April 2024, trusts and estates with income of all types up to £500 will not pay tax on, or report on, income as it arises. Where income exceeds that amount, tax will be payable on the full amount. The new £500 tax-free amount will be reduced for some groups of trusts set up by the same settlor.

For estates, the £500 tax-free amount will apply:

  • for every tax year of administration, but unused amounts do not roll over to subsequent years when reporting under informal procedures
  • to chargeable income, after taking off ISA income which continues to be exempt after a person has died until closure or up to 3 years following death

Until then …

For the remainder of this tax year, the existing informal arrangement has been extended, meaning that trusts and estates do not need to report Income Tax where their only source of income is savings and the tax otherwise payable is no more than £100.

HM Revenue & Customs has also announced an intention to make changes to Inheritance Tax (IHT) regulations this year to remove some non-taxpaying trusts from reporting requirements.

Taking sensible tax steps

It’s important to ensure you are in the best place possible to take advantage of any allowances, exemptions and reliefs available to avoid paying more tax than is necessary. Sensible tax planning, including the use of trusts, can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.