Trusts and their tax treatment

One classification decides everything on this node: what KIND of trust is it? A bare trust is transparent — the beneficiary is treated as owning the assets outright, income is taxed on them personally at their own rates, and the trustees pay nothing at all (subject to the parental settlement rules where a parent settles for their minor child). An interest-in-possession trust — a beneficiary with an automatic right to the income as it arises — puts tax on the trustees, but only at BASIC rates: 20% on interest, 8.75% on dividends; the beneficiary is then taxed at their own marginal rate with credit for what the trustees paid. A discretionary trust — trustees choosing who gets what — pays the full trust rates: 45% on interest, 39.35% on dividends. Before the rates, though, the de minimis: trust income of £500 or less is simply not taxed, but the rule is a CLIFF, not a band — one pound over and the WHOLE amount is taxed from the first pound, and the threshold is split between all of a settlor's current trusts (floored at £100 each). Precision points the distractors trade on: trustees have no personal savings allowance and no dividend allowance — those belong to individuals; the old £1,000 standard-rate band was abolished from April 2024 and appears only as a trap; and 'trust rates' means discretionary trusts — giving them to an IIP trust, or basic rates to a discretionary trust, are the two standard swaps.