Income Tax Act 2007 section 497

Calculation of trustees' tax pool

Section 497 sets out how to calculate the running balance of a discretionary trust's tax pool for any given tax year, which determines whether the trustees face an additional tax charge when making payments to beneficiaries.

• The tax pool carries forward from year to year, reduced by tax credits attached to discretionary payments made and any relief claimed in the previous year, but never falling below nil
• The current year's qualifying income tax liabilities are then added to arrive at the pool balance available for the year
• If the trustees were non-UK resident in the previous year, the brought-forward balance comes from the last year in which they were UK resident
• If the settlement is newly established in the current year, or the trustees have never been UK resident before, the pool starts at nil and equals only the current year's tax