Revenue Tax Briefing

The content shown on this page is a Tax Briefing produced by the Irish Revenue Commissioners. To view the section of legislation to which the Tax Briefing applies, click the link below:

Revenue Tax Briefing Issue 33, September 1998

Discretionary Trusts - Surcharge

Surcharge on Undistributed Income

Section 805 Taxes Consolidation Act 1997 provides for a surcharge at the rate of 20% on the undistributed income of discretionary trusts.

The surcharge applies to income arising in a year of assessment insofar as it exceeds the income applied in defraying the expenses in that year which are properly chargeable to income, or would be so chargeable but for any express provisions of the trust.

Discretionary Trust Tax (DTT) has been allowed concessionally in the past as an expense which is properly chargeable to income for the purpose of calculating a surcharge on undistributed income. The reasoning behind the concession is that the charges are mainly annual and close in nature to income type expenditure. This concession will continue for the foreseeable future.

Because DTT is a Capital Tax the point has been made that Capital Gains Tax (CGT) should also be allowed as an expense for the purpose of calculating a surcharge on undistributed income of a discretionary trust.

CGT is a tax on a chargeable capital gain on the disposal of an asset and periodic in nature. It is not an expense which is properly chargeable to income. Revenue are not prepared to extend the concession of allowing DTT as an expense for the purpose of calculating a surcharge on undistributed income of a discretionary trust to CGT.