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Beneficiaries who do not have either a vested or a contingent interest in particular settlement assets may receive settlement income from the trustees in a variety of circumstances. Such a payment is treated as a net amount after deduction of income tax at the trust rate for the year in which payment is made (currently 45% from 2013/14)¹. The beneficiary is assessed on the grossed up amount and is treated as having paid tax at that rate. They can claim repayment if they are taxable at the higher or basic rate². Separate provisions apply to payments constituting employment income of a beneficiary as described below and in I5.1012.

This rule does not apply to annuities unless they are paid under a discretion, see I5.1305.

This rule does also not apply where the income of the settlement is treated as income of the settlor (see Division I5.11). In that case the income paid to the beneficiary is not treated as part of his taxable income³.