Higher rates of income tax for trusts

The biggest news of the Budget 2009 was the announcement of a new 50% rate for individuals with income above £150,000 from 6 April 2010. Another less publicised change is the significant increase in trust income tax rates from next year.

The trust rates apply to most trusts where the income is over £1,000 and the trustees can either accumulate the income or pay it at their discretion. The tax rates applicable to trusts are based on the highest rate of income tax.

From 6 April 2010, the trust income tax rate will increase from 40% to 50% for non-dividend income and from 32.5% to 42.5% for dividend income. This represents a significant increase from the proposed levels originally announced in the pre-Budget report which have also been brought forward by one year.

This is a considerable change in the taxation of trusts and trustees should seek professional advice on how to minimise the effect of these increase rates and on their investment strategies. If you would like further information, please contact Catherine Ball at catherineball@hewitsons.com or on 01604 233233.