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What is a discretionary payment?

A payment by UK resident trustees¹

is a discretionary payment if it is:

1. Ìý

   •ÌýÌýÌýÌý income in the hands of the recipient for income or corporation tax purposes

2. Ìý

   •ÌýÌýÌýÌý income paid to an unmarried minor child of the settlor which is treated as income of the settlor (see I5.1120)²

Payment includes payment in money's worth³. Income does not include employment income⁴ (see below).

The payment is deemed to be a net amount from which tax has been deducted at the trust rate for the year in which the payment is made and includes payment in money's worth⁵ but does not include employment income⁶ (see below).

Where a payment is made by non-resident trustees exercising their discretion in the UK, the beneficiary does not have a tax credit and the trustees are not liable for tax on the payment⁷. However, this does not affect the operation of the concession⁸ that enables UK resident beneficiaries that receive discretionary payments