The Budget on 28 October 2026 increased the previously announced rises in the rates applying to property and savings income. From 6 April 2027, the relevant rates will be four percentage points higher than the equivalent current rates 

Trustees and beneficiaries should review the resulting cash-flow implications as well as their longer-term investment strategy to manage these changes. 

The position before this Budget 

For the 2026/27 tax year, trustees of discretionary trusts generally pay income tax at 45% on non-dividend income, including rental profits and bank interest.  Interest in possession trustees – where a beneficiary has a right to income as it arises – generally pay 20% on property and savings income, with the beneficiary’s final liability calculated separately.  

Budget 2025 announced an increase of 2 percentage points to the rates applying to property and savings income to apply from April 2027.  

Budget 2026 Changes 

Budget 2026 doubles the proposed 2 percentage points increase to the rates applying to property and savings income, making these 24%, 44% and 49% from 6 April 2027.  Crucially for trustees, HMRC expressly identifies trustees’ property and savings basic rates of 24%, and property and savings trust rates of 49%. 

What does this mean for trusts and beneficiaries? 

The clearest impact is on discretionary trusts retaining taxable rental profits or interest as more income tax means less cash available for reinvestment or available to support beneficiaries.  Discretionary distributions also involve tax-credit and ‘tax pool’ rules—the record of tax available to support distributions.  Under the current rules, discretionary income distributions generally carry a 45% tax credit, supported by the trust’s tax pool. Although Budget 2026 confirms a 49% trust rate for accumulated or discretionary property and savings income from 6 April 2027, the Budget material does not explain how the higher rates will interact with the existing 45% tax-credit and tax-pool rules. Further legislative detail will therefore need to be considered in due course. 

For interest in possession trusts, higher tax on the trustees does not necessarily represent an equivalent increase in the beneficiary’s final tax. The beneficiary’s own income, allowances and credit for trust tax paid must also be considered. 

Practical steps before the new tax year 

Trustees should consider identifying the income streams affected by the changes and updating cash-flow forecasts for 2027/28 onwards. This may be particularly important where trusts expect to make regular payments to beneficiaries or have significant property or interest income. 

For discretionary trusts, trustees should continue to maintain clear records of property income, savings income and dividends, and ensure that tax-pool records are reconciled before making significant income distributions. 

Trustees may also wish to review the tax profile of trust investments with their tax and investment advisers, particularly where the trust holds significant cash deposits or property investments. 

Any change to investments or distributions should, however, take account of the terms of the trust deed, the trustees’ duties, beneficiaries’ needs and the wider tax and investment consequences. Tax rates should not be considered in isolation.