Income Tax Act 2007 section 464

Scottish trusts

Section 464 ensures that beneficiaries of Scottish trusts are not disadvantaged for income tax purposes because Scottish law does not recognise the English concept of an equitable right in possession.

• Scottish law does not recognise the concept of an equitable right in possession, which is used in English trust law to distinguish interest-in-possession trusts from discretionary trusts for income tax purposes.
• Where income arises to UK-resident trustees of a Scottish trust, and a beneficiary would have had an equitable right in possession to that income if the trust were governed by English and Welsh law, the beneficiary is treated as having such a right for income tax purposes.
• This deemed right applies even though no such right actually exists under Scottish law, ensuring consistent income tax treatment across the UK's different legal jurisdictions.
• The practical effect is that qualifying Scottish trust beneficiaries are taxed as if they hold an interest in possession, rather than being subject to the higher tax charges that apply to discretionary trust income.