On 30 November 2021,  tax administration and maintenance day, the government said that it would formalise an existing interim concession that removes trustees and personal representatives from income tax, where the only source of income is savings interest and the tax liability is less than £100.

The expected technical consultation on the precise form and level of the change has now      launched. This includes draft clauses at Annex B.

The proposed legislation goes further than the existing concession and covers all types of income, rather than just savings interest.

The legislation has been drafted to apply the exemption at step two of the calculation, as set out in s23, Income Tax Act 2007. The exact level of the exemption will be set at a later stage, although an illustrative amount of £500 is used in examples and the draft clauses. A £500 exemption at step two equates to £100 of tax relief at a 20% tax rate.

The “cliff edge” effect of the concession, it is proposed, should be retained to avoid additional complexity for the beneficiary that would arise from the rules for ordering and determining the amount of the available tax credit.

Special rules will apply to discretionary trusts that maintain tax pools to keep track of income tax the trustees pay. Where discretionary trusts would be covered by the de minimis rule, they will still have to pay tax when they pay income out to a beneficiary, to ensure that the 45% tax credit remains funded.

Please send comments on the proposals to Caroline Miskin well in advance of the HMRC deadline of 18 July 2022.