Income Tax Act 2007 section 493

Discretionary payments by trustees

Section 493 defines which discretionary payments made by trustees fall within this chapter and therefore trigger the grossing-up and tax-deduction rules in sections 494 and 495.

• Where UK-resident trustees make an annual payment to a beneficiary in the exercise of a discretion (whether exercised by the trustees themselves or by another person), the special rules in sections 494 and 495 apply provided one of two conditions is met.
• Condition A is that the amount paid only counts as the beneficiary's income (for income tax or corporation tax purposes) because of the payment itself — but this does not include payments that are taxable as employment income.
• Condition B is that the payment is treated as the settlor's income under the parental settlement rules (section 629 of ITTOIA 2005), for example where income is paid to a settlor's minor child.
• The term "payment" in this chapter is broad and includes payments made in money's worth, not just cash.