TSEM3780 | Trust income and gains: beneficiaries: payment from trust capital - when income accumulates

The treatment of payments to beneficiaries depends on whether the payment is from trust income or capital. Trust capital can include straightforward capital receipts, for example from the disposal of an asset, capital-deemed-income receipts and accumulated income.

Whether/when income is accumulated

This can depend on what the trust deed says, what the trustees’ usual policy is, or the trustees’ formal decision. For example:

• the trust deed states that income which is not distributed becomes accumulated to capital after a specified period, e.g. after two years

• the trust deed states that all income is to be accumulated until the beneficiaries reach a certain age

• the accumulation period of the trust has ended, say 25 years after the trust was established, so the trustees cannot accumulate income and have to pay out all income to beneficiaries

• the accumulation is shown in the presentation of the annual accounts

• the trustees meet annually to decide how the income is to be allocated – for example they decide to pay out half and accumulate half

• the trustees decide to accumulate all of the undistributed income before winding up the trust.

If there is nothing specific in the deed, trustees with a power to accumulate have a reasonable time within which they can decide whether to accumulate income. Further advice can be obtained from Trusts Technical.