The terms of a trust may require the payment of an annuity to a beneficiary. Alternatively, discretionary trustees may decide to pay a fixed annual sum to a beneficiary for a predetermined period. In both cases, the beneficiary has a right to the annuity, and effectively has an interest in possession in a fixed portion of the income.
The tax treatment of annuities arises from three separate provisions in the legislation:
the income which funds the annuity, is not subject to the trustees discretion or available to be accumulated. Therefore, that portion of income is not subject to trust rates of tax, regardless of the status of the trust as a whole, because it belongs to another person. See the Discretionary trusts ― income tax guidance note
the income which funds the annuity qualifies as a charge on income as an annual payment. The gross amount of the
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