Discretionary Trusts

Discretionary trusts · Tax & accounts

Table of Contents

Discretionary trusts that actually do their job.

Discretionary trusts are powerful tools for inheritance tax planning, controlling family wealth, and protecting vulnerable beneficiaries – but they need careful annual administration to keep doing what you set them up for. We handle every part of that.

Book a free 30-min call →See our fees

10-year IHTCharge calculations

Exit chargesOn capital appointments

45% trust rateWe optimise your distributions

SA900Filed every year

Used well, they are still one of the best estate-planning tools

A discretionary trust gives the trustees flexibility – they decide who gets what, and when. That makes it powerful for IHT planning, for protecting beneficiaries who are not yet ready to manage capital, and for adapting to family circumstances that the settlor could not foresee. The price you pay for that flexibility is the IHT regime: a 20% entry charge above the nil-rate band, up to 6% every 10 years, and exit charges when capital is appointed out.

We make the regime work in your favour. We model the 10-year charge before each anniversary, structure capital appointments to minimise exit charges, file the trust SA900 with the right rate of trust tax, issue R185 statements to beneficiaries with the correct tax credits, and watch for the legislative changes that have hit discretionary trusts hard in the last few years.

In your fixed fee

What’s included

Annual trust accounts
SA900 trust tax return
Trust income and expense schedule
Distribution and apportionment computations
R185 (Trust Income) statements for beneficiaries
10-year anniversary IHT calculation and IHT100 filing
Exit charge calculations on capital appointments
Settlor-interested trust assessment if applicable
Trust Registration Service annual update
Beneficiary tax planning and reclaim support

Why Mercian

Why clients stay

A genuinely modern approach

Cloud accounting, MTD-ready workflows and secure document portals — no shoeboxes of receipts, no surprise emails in March.

Fixed fees, no clock-watching

A clear price agreed up front. Call us as often as you need without worrying about a meter running.

Senior advice, not call-centre answers

Every client has a named accountant who knows your situation — not a ticket queue.

FAQ

Common questions

What is the 10-year anniversary charge?

For most discretionary trusts, IHT is charged at up to 6% of the trust value every 10 years. The exact rate uses historic nil-rate bands and the value of property added to the trust. We model it for you well before the anniversary.

What is an exit charge?

When capital is appointed out of a discretionary trust to a beneficiary, an IHT exit charge can apply – usually a fraction of the most recent 10-year charge rate. Pre-anniversary appointments often have no charge at all.

How are beneficiaries taxed on income from the trust?

Beneficiaries receive a 45% tax credit on income paid out of a discretionary trust. Higher-rate beneficiaries owe nothing extra; basic-rate or non-taxpayer beneficiaries can reclaim some via self-assessment. We provide R185 statements for each.

Should I add property to my discretionary trust now?

It depends. Lifetime additions over the nil-rate band attract a 20% entry charge. Adding incrementally below the NRB or using the spousal exemption is more efficient. We model the options.

Can I be a trustee of my own discretionary trust?

Yes, but watch for “settlor-interested” rules – if you or your spouse can benefit, the income is taxed on you, not the trust. We assess the position before structuring.

Related services

Ready to put your discretionary trust on a tidier footing?

Book a free 30-minute call. We will tell you straight whether we can help, what it would cost, and what to do next. No sales pitch, no obligation.

Book a free call →Email hello@mercianaccountants.co.uk