# Trusts (Capital and Income) Act 2013

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# Trusts (Capital and Income) Act 2013

# 2013 CHAPTER 1

An Act to amend the law relating to capital and income in trusts.

[31st January 2013]

Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons,                           in this present Parliament assembled, and by the authority of the same, as follows:—                        

## 1Disapplication of apportionment etc. rulesE+W

(1)Any entitlement to income under a new trust is to income as it arises (and accordingly section 2 of the Apportionment Act                        1870, which provides for income to accrue from day to day, does not apply in relation to the trust).                  

(2)The following do not apply in relation to a new trust—                  

(a)the first part of the rule known as the rule in *Howe v. Earl of Dartmouth* (which requires certain residuary personal estate to be sold);                  

(b)the second part of that rule (which withholds from a life tenant income arising from certain investments and compensates the                        life tenant with payments of interest);                  

(c)the rule known as the rule in *Re Earl of Chesterfield's Trusts* (which requires the proceeds of the conversion of certain investments to be apportioned between capital and income);                  

(d)the rule known as the rule in *Allhusen v. Whittell* (which requires a contribution to be made from income for the purpose of paying a deceased person's debts, legacies and annuities).                  

(3)Trustees have power to sell any property which (but for subsection (2)(a)) they would have been under a duty to sell.                  

(4)Subsections (1) to (3) have effect subject to any contrary intention that appears—                  

(a)in any trust instrument of the trust, and                  

(b)in any power under which the trust is created or arises.                  

(5)In this section “new trust” means a trust created or arising on or after the day on which this section comes into force (and includes a trust created                        or arising on or after that day under a power conferred before that day).                  

## 2Classification of certain corporate distributions as capitalE+W

(1)A receipt consisting of a tax-exempt corporate distribution is to be treated for the purposes of any trust to which this section                        applies as a receipt of capital (even if it would otherwise be treated for those purposes as a receipt of income).                  

(2)Subsection (1) has effect subject to any contrary intention that appears—                  

(a)in any trust instrument of the trust, and                  

(b)in any power under which the trust is created or arises.                  

(3)The following are tax-exempt corporate distributions for the purposes of this section and section 3—                  

(a)a distribution that is an exempt distribution by virtue of section 1076, 1077 or 1078 of the Corporation Tax Act 2010, and                  

(b)any other distribution of assets (in any form) by a body corporate, where the distribution is of a description specified by                        an order made by the Secretary of State by statutory instrument.                  

(4)An order under subsection (3)(b) may specify a description of distribution only if neither income tax nor capital gains tax                        is chargeable in respect of a distribution of that description.                  

(5)A statutory instrument containing an order under subsection (3)(b) is subject to annulment in pursuance of a resolution of                        either House of Parliament.                  

(6)This section applies to any trust, whether created or arising before or after this section comes into force.                  

## 3Power to compensate income beneficiaryE+W

(1)This section applies in any case where—                  

(a)by virtue of section 2 a tax-exempt corporate distribution made by a body corporate is treated for the purposes of a trust                        to which that section applies as a receipt of capital, and                  

(b)the trustees are satisfied that it is likely that, but for the distribution, there would have been a receipt from the body                        corporate that would have been a receipt of income for the purposes of the trust.                  

(2)The trustees may make a payment out of the capital funds of the trust, or transfer any property of the trust, to an income                        beneficiary for the purpose set out in subsection (3) (and any such payment or transfer is to be treated as a payment or transfer                        of capital).                  

(3)The purpose is placing the income beneficiary (so far as practicable) in the position in which the trustees consider that                        the beneficiary would have been had there been the receipt of income mentioned in subsection (1)(b).                  

(4)In this section “income beneficiary”, in relation to a trust, means a person entitled to income arising under the trust, or for whose benefit such income may                        be applied.                  

## 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  

## 5Crown application, extent and commencementE+W

(1)Sections 1 to 3 bind the Crown.                  

(2)This Act extends to England and Wales only.                  

(3)This section and section 6 come into force on the day on which this Act is passed, but otherwise this Act comes into force                        on such day as the Secretary of State may by order made by statutory instrument appoint.                  

(4)An order under subsection (3) may—                  

(a)appoint different days for different purposes;                  

(b)make such provision as the Secretary of State considers necessary or expedient for transitory, transitional or saving purposes                        in connection with the coming into force of any provision of this Act.                  

## 6Short titleE+W

This Act may be cited as the Trusts (Capital and Income) Act 2013.