I have a large discretionary trust client with significant income each year. The tax pool has been accumulating for many years and currently stands at over £800,000. The trust is for the benefit of two individuals, one of whom is approaching the age at which they will receive a life interest in their share of the fund. My concern is over the large tax pool that has accumulated, as we do not have scope to get enough income distributions out (without generating an additional rate liability for the beneficiary) before she receives an interest in possession in 50% of the trust assets next year.
My question is, can trustees make discretionary income distributions to a beneficiary that was formerly a discretionary beneficiary but now has an interest in possession?