Distribution of life policy gain


I have a question upon which I would appreciate the groups view.

The situation is a discretionary trust has a life assurance policy. If the policy is encashed the trust is charged to income on the gain. Any actual tax paid (on top of the attached credit) is eligible to enter the tax pool.

My question is whether this gain can be distributed as income to the beneficiaries and use the credits in the tax pool?

My instinct is ‘no’ as it is not income for trust law purposes, only deemed taxable income, but I would appreciate the members views and if anyone has a reference?

I also would think that the best option will always be to assign the policy to the beneficiary before encashment, but I want to ensure I have understood both options properly.

Thanks for your help

Bronwyn Prior
Gepp & Sons Solicitors LLP