Section 493: Discretionary payments by trustees
1448.This section sets out what payments come within this Chapter. It is based on section 687(1) and (5) of ICTA.
1449.Subsection (1) provides that an annual payment is within this Chapter if it is made by trustees in the exercise of a discretion (exercised by the trustees or any other person) and provided that condition A or B is met. And it is made explicit that the trustees must be UK resident. See Change 89 in Annex 1.
1450.Condition A is that the payment is income of the beneficiary for either income tax or corporation tax purposes. “Beneficiary” is used instead of the phrase “person to whom [the payment] is made” in section 687(1)(a) of ICTA. The reference to corporation tax provides a link to section 687A of ICTA.
1451.A discretionary payment from an employment-related settlement may be taxed on a beneficiary as employment income. Such a payment is excluded from this section. But the income arising to the trustees out of which the payment is made is taxable at the special trust rates. In such circumstances there is effectively double taxation and the trustees may be able to claim a payment from HMRC. See ESC A68.
1452.Condition B is that the payment is treated as income of a settlor under section 629 of ITTOIA.
