End of accumulation period for disabled beneficiary trust

The Criminal Injuries Board settled compensation into a discretionary trust for a single beneficiary on 1st October 1997 and so the accumulation period ended on 1st October 2018. As this is a section 89 Settlement, I assume that I continue to apply the trust rate for income tax as the beneficiary does not have the right to the income as it arises, but the Trustees can decide when they give the beneficiary the income following the income being established by the annual accounts. Is this correct? Thanks

Nick Duncumb
N 4 Tax

Since the trustees no longer have power to accumulate income the trust rate will apply only if the trustees have discretion over who the income is paid to.

Paul Davies
Clarke Willmott LLP

I suggest the tax rate is a secondary question.

Upon expiry of the accumulation period, someone will be absolutely entitled to the income that has not been applied under the trustees’ discretion. Whilst, in many cases, it may be a third party, in some cases it will be the beneficiary so that they will have the right to receive the income whether or not the trustees exercise their discretion. In such cases, I believe the trust will be treated as a “normal” IIP for income tax purposes.

Only once you know who is entitled to the unapplied income, can you decide on the tax implications.

Paul Saunders