Charitable trusts and the single rate band

Charitable trusts are typically exempt from income tax, making them a useful structure for managing donations and assets intended for charitable causes. However, complications arise when the settlor of a charitable trust has also made discretionary family settlements.

Under UK tax rules, the £1,000 starting rate band for discretionary trusts must be divided between all settlements created by the same settlor. This means that if a settlor has multiple trusts, including charitable and discretionary family trusts, the starting rate band is shared, potentially creating tax liabilities.

Although the tax owed is unlikely to be substantial, the administrative burden of calculating the correct amount can be time-consuming.

The Impact of Multiple Trusts on Tax Treatment

When a settlor establishes both charitable and discretionary trusts, the divided rate band can result in unexpected tax charges. Some key implications include:

• Reduced tax-free allowance per trust, increasing taxable income within discretionary trusts.
• Complex reporting requirements, requiring trustees to correctly allocate tax across multiple trusts.
• Potential tax inefficiencies, making tax planning essential to avoid unnecessary liabilities.

Trustees need to monitor tax treatment carefully and ensure that all relevant tax exemptions are applied correctly.

How We Can Help

At Lewis Brownlee, we specialise in advising on charitable trusts and the single rate band, helping trustees manage tax efficiently and compliantly. With leaders specialising in charities accounting, we can easily clarify the complexities. So, when you’re ready, we’re ready!

Do take us up on one of our free introductory meeting to discuss your trusts and tax strategy. Together, let’s see how we can partner in your charities success!

For expert tax advice or fr any other accountancy-related concern, contact us today.

Final Thoughts

Managing charitable trusts and the single rate band requires careful planning. Understanding how discretionary trusts impact tax exemptions can help reduce administrative burdens and optimise tax efficiency.