Trusts (Income and Capital) Act 2013 section 3

Power to compensate income beneficiary

Section 3 gives trustees the power to compensate an income beneficiary from the trust's capital when a corporate distribution that would normally have been income has been reclassified as capital under section 2.

• Where a tax-exempt corporate distribution has been treated as capital under section 2, trustees may compensate an income beneficiary if the distribution has effectively replaced what would otherwise have been an income receipt.
• Trustees can make a payment from the trust's capital funds, or transfer trust property, to the income beneficiary to make up for the lost income — and any such payment or transfer is itself treated as a capital transaction.
• The aim of the compensation is to put the income beneficiary, as far as practicable, in the same position they would have been in had the corporate distribution been received as income.
• An "income beneficiary" is defined as any person who is entitled to income arising under the trust, or for whose benefit such income may be applied.

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