The 39% Trust Tax Rate: What It Really Means for You
From 1 April 2024, the trustee tax rate increased from 33% to 39%. That headline has caused many families to panic and consider winding up their Trusts.
But here’s the reality: for most people, this change doesn’t mean what you think it does.
Trusts Are Tax Neutral
A Trust doesn’t always pay tax at 39%. The rule is simple:
If income is retained in the Trust, it is taxed at 39%.
If income is distributed to beneficiaries, it is taxed at their personal tax rates.
That means you can often reduce tax by distributing income wisely.
Success Examples
1. Couples on Different Tax Rates
Jane earns $190,000 per year (top rate 39%).
Mark earns $80,000 per year (marginal rate 33%).
Their Trust earns $20,000.
If the Trust keeps the income, it pays 39% = $7,800 tax.
The Trust distributes the income to Mark, it’s taxed at 33% = $6,600.
Saving: $1,200.
2. Helping with Children’s Education
A Trust earns $15,000.
The children (aged 17 and 19) both study at university, with no income of their own.
Distributing $7,500 each to the children means the Trust pays no tax, and the children pay very little (or none) at their lower personal rates.
Failure Example
Paul wound up his Trust because of the 39% rate. A year later, he realised he could have achieved the same tax result by distributing income, but now his family has no asset protection.
Why This Matters
The 39% rate only hurts if you leave income sitting in the Trust. With good planning, your Trust remains:
A flexible tool to manage family finances.
A way to balance income fairly across family members.
Still highly effective for asset protection.
Common Misunderstandings
“The new tax makes all Trusts pointless.”
False. Most clients never leave significant income in the Trust anyway.“It’s too complicated to manage.”
Not true. Once set up correctly, distributions are straightforward.“I’ll save money by winding it up.”
Rarely. You may give up powerful protections and get no tax savings.
The Bottom Line
Don’t wind up your Trust just because of a headline tax rate. A Trust, properly run, is still one of the most effective tools for protecting and managing family wealth.
👉 Next step: Book a short Trust Check with us. We’ll map your income and show you exactly how to keep your Trust working for you.
Disclaimer: This blog is general information only, not legal advice. The decision to wind up a trust has serious implications, including potential loss of asset protection and tax consequences. Please seek professional advice for your situation before taking any action.+++From 1 April 2024, the trustee tax rate increased from 33% to 39%. That headline has caused many families to panic and consider winding up their Trusts.
But here’s the reality: for most people, this change doesn’t mean what you think it does. Trusts are tax-neutral if income is distributed to beneficiaries at their personal tax rates.
