When considering making lifetime gifts, many individuals prefer to set up a discretionary trust as this enables them to retain control and flexibility as they can act alongside the other trustees and can decide when to make payments out to a beneficiary. However, from a tax perspective any income and capital gain will be taxed at the trust rate(s). Income above the standard rate band, usually £1,000 assuming only one trust has been settled by the same settlor, will be subject to income tax at 45% or 39.35% on dividend income. From the 2024/25 tax year the standard rate band will be eliminated, and all income will be subject to the rate applicable to trusts. If income is paid out to a beneficiary, they are treated as receiving it with a 45% tax credit and can therefore reclaim some tax depending on their personal income tax position. In addition, capital gains over and above the annual exemption of £3,000, again assuming only one trust has been settled, are subject to capital gains tax (CGT) at 20% or 28% for residential property. From 2024/25 tax year the CGT annual exemption will reduce to £1,500. If capital is appointed out then this gives rise to an exit charge for inheritance tax (IHT) purposes, however whether any tax is due will depend on the precise facts.