Trusts (Income and Capital) Act 2013 section 2

Classification of certain corporate distributions as capital

Section 2 establishes that certain tax-free corporate distributions received by a trust are to be treated as capital rather than income, and provides a mechanism for extending this treatment to other types of distribution by statutory instrument.

• Tax-exempt corporate distributions received by a trust must be treated as capital, even if they would normally be classified as income
• This default rule can be overridden if the trust deed or the power creating the trust expresses a contrary intention
• Tax-exempt corporate distributions include exempt demerger distributions under the Corporation Tax Act 2010 and any other corporate distributions specified by the Secretary of State, provided they are free of both income tax and capital gains tax
• The rule applies to all trusts regardless of whether they were created before or after the Act came into force

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